Updated: Nov 19, 2020
Covid19, trade wars, Brexit, immigration, climate change, economic turmoil.
Interest rates near zero, stock markets erratic, Governments in turmoil trying to handle the Covid19 pandemic and save millions of jobs and industries, wow, depressing. Global warming, wars, the list is endless now.
So, what do investors do with their money? They park it.
Many institutional investors, who look after your money, such as banks, credit unions, insurance companies, pensions, hedge funds, REITs, investment advisors, endowments, and mutual funds will hedge and invest in traditional safe- haven assets.
Safe-haven assets are used by the mentioned investment managers or speculators to limit their exposure during times of market instability or even gain by buying assets that appreciate during these times.
Typically, during times of economic or geopolitical turmoil many assets depreciate whilst safe havens are either stable or increase in value.
So, what are notable safe-haven assets we can trade?
Defensive Stocks (Not military)
Gold is the classic safe- haven asset, precious, scarce, historically used in trading and tangible, you can stick it in a vault or under your bed.
With the impact of Covid19, Gold broke $2000 an ounce this year for the 1st time.
The Japanese Yen (JPY) is backed as a safe currency as it often appreciates against its majors when stocks and government bonds experience volatility. Japan is seen as a geopolitical neutral country with stability and sustained development. There are several factors that support the currency during market stress and as such has become a standard currency investment during such times. Many institutions require currencies as part of their portfolio because it is liquid and can be moved fast.
The Swiss franc (CHF) is like JPY, the country is strategically located bang in the middle of the economic power bloc of EU but neutral and again historically the currency gains support in such times.
Look at the year performance of some of the safe havens and you can see from January 2020 until now October 2020 safe havens have found strong investment, Candles represent one month of trade. The second wave has begun, will this trend continue?
A defensive stock is a stock that has consistent demand regardless of the state of the overall stock market & economy. There is a steady demand for their products, not just toilet paper
While many stocks will often fall in a general market sell off, there are certain safe-haven stocks that can retain or increase in value during economic hardship and in recent years some Fintech stocks have become resistant to economic turmoil, especially with the recent lockdowns we have experienced , working from home etc. An ever-reliant and growing consumer demand for internet-based companies, has supported specific stocks.
Amazon as a Prime example (:
Some analysts are arguing Bitcoin has become a digital safe haven asset in recent times of near zero interest rate and Bond returns?
How to trade safe-haven assets
Markets are cyclical with corrections happening every so often. Prior to Covid19 the biggest one since the Great Depression, when I just started, was the Banking crisis of 2008. Therefore, it is important for traders to be able to recognise the importance of safe-haven assets, and use the price movement correlated to markets in turmoil to implement their own strategies and take advantage as well as hedging other assets in their portfolio.
Trading is not an exact science and many variables change the dynamic of the markets and specific assets at any given time. Many investors are still backing equities rather than low yielding Bonds, which are regarded as the safest investment, because they have an appetite for higher risk and potential higher returns.
Today and since the outbreak of the pandemic and the resurgence of a second wave safe havens have acted as normal and as a trader you can always find ideas and trading opportunities.
Many traders enjoy quick price movements and trends as an opportunity to gain winning trades on a regular basis.
You know when were in difficult times when pawn brokers open in the high street or advertise to buy our old jewellery on TV.
Need help to trade, try a demo, we are here to assist.