Dubai: If you’ve been frustrated with your investments not growing more than 5 per cent on average in a year, you would be surprised to know that stocks worldwide have been rising twice as much in the past few months. But does this mean you should now move more savings into stocks?
UAE-based veteran investors and stock market researchers widely recommend that it would be profitable for you to do so, with new data indicating that savers worldwide are already rushing to move their investments to stocks, and prices of their holdings have been rising as a result.
“After high inflation, interest rate hikes and recession worries pummeled stocks last year, markets worldwide have since been rising given that these uncertainties have begun to wane in 2023,” said Brody Dunn, a UAE-based investment manager working for over 20 years in advisory services.
“Stocks worldwide roughly gained over 10 per cent in the past three months, with the broadest index of world stocks of MSCI [a global provider of equity, fixed income, real estate indexes] rising almost 7 per cent in the last month alone. So it’s a good time for those looking to earn more profits.”
After high inflation, interest rate hikes and recession worries pummeled stocks last year, markets worldwide have since been rising given that these uncertainties have begun to wane in 2023
Why are stocks now rising worldwide? Will it continue?
Stock analysts have been attributing the gains recorded in recent months in part to the poor performance last year, when investors already responded to the grim economic conditions with a sell-off to minimise losses to their investment portfolios.
“Investors worldwide have been flocking back to the market as inflation eased in most key economies and rate hikes slowed, even if some of those market headwinds still persist and the threat of a global recession looms,” added Dunn.
“The takeaway from such an investor rush for those looking to invest now is that with stock markets worldwide performing better than what the vast majority expected, markets have proven to be impressively resilient, despite bad news, implying an added level of security to your investments.”
However, analysts have opposing opinions about whether or not stocks will continue to rise going forward as some said they expect the rally to endure for the remainder of the year while others predicted a global recession that would render the good times short-lived.
How a global recession will impact world stock markets
Over the last year, central banks worldwide imposed an aggressive string of interest rate hikes, which were aimed at slashing inflation across economies but still risked slowing global growth while increasing the threat of a recession. So no, I don’t think stocks will keep rising,” added Dunn.
Sixty-five percent of economists expect a recession within the next year, according to a Bloomberg survey last month. Still, many stock investors hold out hope that the world economy could avert a downturn or expect that a mild recession would cause little economic upheaval.
But what does this mean for investors and how would it impact them? “The current risk of a global recession can be alarming to any investor, especially when it comes to what needs to be done when it comes to his or her investments,” Zubair Shakeel, another UAE-based investment advisor.
But while stock markets worldwide usually tank — or at the very least, become extremely volatile — during a global economic downturn, financial experts advise investors to not to pull money out of an investment in a moment of panic. Does that mean you should not take the threat seriously?
The current risk of a global recession can be alarming to any investor, especially when it comes to what needs to be done when it comes to his or her investments
Is the threat of recession high when markets rise?
“During a global recession, you can expect stock prices to fall across the board. This happens for a number of reasons. For one, confidence to spend plummets during global economic downturns. People are less likely to spend money – which means businesses make less profit,” added Shakeel.
Given that the average stock market slide during a global recession is 44 per cent, as indicated by data, it’s a common saying among stock market researchers that the market would have to slide at least 30 per cent from recent highs to show that investors are taking a recession seriously.
“Global stocks, which entered positive market territory just a few weeks ago, has shown little sign this year that the world economy could be headed for a downturn,” Shakeel evaluated.
“Small-sized stocks, which are economic bellwethers because of their exposure to financial companies, have too started to narrowly rise in recent weeks. That suggests that investors’ risk appetites are growing, since mega-sized stocks continue to dominate the rally.”
Investors often ask “How should I handle market volatility?" and “Do I sell stocks when markets are volatile?" That’s why it can be hard to accept that often the option in market selloffs is to do nothing.
“When times are tough, we want to limit losses. Even when things go well, we wish we had invested more. We all fear missing out,” said Aditya Munjuluru, UAE-based expat investing for over three decades.
“But when you’re investing, giving in to fear is often a losing strategy. More often than not, investors with this mindset tend to buy high and sell low as they invest more in a rising market and pull money out in a falling market.”
Verdict: Is now a good time to buy stocks, or do I wait?
So how do you evaluate whether it's a good time to buy and when to wait for a pullback? If you're looking to invest for your future -- five, 10, or 40 years off -- then now is as good a time as ever to buy stocks.
“Waiting for a pullback in stocks with a long-term time horizon isn't going to move the needle that much. How much is a 10 per cent difference going to make on your buy price today in 40 years when your original investment has grown more than 10-fold?” Munjuluru further explained.
If you like to research stocks, it might be harder to find good buying opportunities when the overall market valuation climbs higher. Fewer stocks will present value relative to their underlying fundamentals, but that doesn't mean those opportunities don't exist.
“It's always a good time to invest when you find a stock to be undervalued by the rest of the market,” added Aditya, who has made an average of at least 10 per cent profits on stocks every year since he started investing.