Top 4 things which investors must do to ride the market volatility amid Russia-Ukraine war

With the war situation in Ukraine worsening, global equity markets are selling off. Institutional investors have already been skittish due to pending rate hikes by the US Fed. The Ukrainian geopolitical situation has added to their nervousness.

The immediate reaction of large funds is to get into cash to protect capital and then wait for things to settle down before buying. Cash held by global funds has increased from 5% to almost 5.5%.

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Abhay Agarwal, Founder, and Fund Manager, Piper Serica help us decode what should investors do after double-digit fall seen in equities:

Speculative asset classes have seen a sharper correction as investors cut their leveraged positions across the board. Cryptos, emerging market equities, and high-priced new economy stocks are now trading at their multi-year lows.

At the same time, there is a rush into defensive assets like gold and silver with precious metals up sharply to their multi-year highs.

Oil prices have also spiked beyond US$100 with the expectation of disruption of supply from the Russian region.

The sharp decline in cryptocurrencies has confirmed the suspicion that it is not a hedge for any risk but driven by speculative activity.

Interestingly, interest rate hikes now seem to be firmly off the table with US 10-year bond yields cooling-off sharply to 1.87% from the recent high of 2.07%.
 
The west is expected to retaliate with very strong sanctions on Russia that would isolate it from the global economy. While repercussions of the same on the nascent recovery in the global economy are still uncertain it will cause damage to both sides.

We are also bound to see an increase in non-traditional warfare through cyber-attacks and sabotages.
 
We have been advising our investors to refrain from a significant addition to their current equity allocation since no one really knows how bad things will get before they get better.

Geopolitical events have historically given good entry points to long-term investors to add good quality stocks to their portfolios.

We are happy to say that the operating performance of our portfolio companies is insulated from the Ukraine situation since none of our companies have any business exposure to that area.

At the same time, their valuation has been corrected in line with the overall market correction.
 
Our advice to investors is the following:
 
1.      Exit all loss-making, weak companies that do not have a solid business model in your portfolio since these companies will not see a price appreciation even when markets revive. The loss that you may have to book  now will look very small when you look back later. The speculative froth will be gone for a long time.

2.      Immediately exit any loans or margin money that you may be used to trade in F&O or cash segment. The high volatility is going to whipsaw the best of traders.

3.      Use the cash to add high-quality companies that you always wanted to invest in but found the valuations to be high. When the markets sell off even good companies see a significant price correction.

4.      Do not invest everything at one time. Make a 5-10% fresh addition to your existing portfolio. Use further dips to add more in installments.
 
Equity investing is a long-term game. Investors should use all such extraordinary opportunities to add to their portfolio while sticking to their overall asset allocation plan.

Do not let fear or greed impact your decision-making. Rather, use the extreme volatility to your advantage by being judicious and patient.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)