The biggest risk as an investor is inaction and not knowing what to do. With uncertainty comes opportunity – right now, professional trader of 27 years, Andrew Baxter, says there are three main risks to markets right now. Here’s what they are and why. And how you could profit from these:
Risk Equals Opportunity
Identifying risk is one thing, using risk to your advantage to make a buck from it is another. Any investor knows that the everchanging landscape of financial markets is always presenting new challenges and therefore fresh opportunities. The biggest risk of all, however, is inaction or not knowing what to do. Breaking it down and refining your fundamental analysis is something host Andrew Baxter attributes. And to have a greater understanding of what is turning up the heat on the stock market right now. And how you can profit from this.
Risk #1: China
In what was already a slowing property market. The megadeveloper debacles have only exacerbated the problem. With large Chinese megadevelopers like Evergrande and Fantasia responsible. Also, for a large chunk of the country’s annual GDP. And on the brink of falling over. This presents a real risk for stock markets globally. Also, at nearly 4x as geared. As an Aussie developer would typically be. These developer companies have found themselves in a lot of debt that they effectively are can’t pay.
Moreover, This comes as the Chinese property market slows. And nearly 90 million properties are vacant. And all posing a real risk on the construction industry moving forward. How does this affect stock markets? Well, if you’re holding stocks like FMG or BHP in your portfolio. And you’re no stranger to the fluctuation in commodity prices based on Chinese demand for steel production. And share price responses to that. As an example, we’ve seen the price of iron ore drop down from nearly $200/tonne to now $90/tonne. Also, based largely on the risk associated with China. And stocks like FMG here on the ASX wipe off nearly 40% of their share price. As our largest trading partner. This poses a need to explore other countries. In order to reduce our exposure to what is a risk-on nation right now.
Risks #2 and #3: US Politics and Inflation
The risks in the US, as host Andrew Baxter exclaims, are beginning. To pile up on a political and economic landscape. In what has been disaster after disaster. The democrats have failed to paint themselves in glory since taking office from ex-president Donald Trump. Political commentators have actually been calling the return of Mr. Trump. As the republicans claim that the country they had left in a reasonable state. Moreover, has now been butchered under the command of President Joe Biden. With the slew of issues pertaining to illegal immigrants. The failed troop evacuation from Afghanistan. And the tensions surrounding the southern border. The risk of political uncertainty. And a one-term presidency is shaping up to be a real one.
Additionally, from an economics perspective. We’ve just seen the highest rate of inflation in 30 years. And the signing of a $1 trillion infrastructure bill to spend even more money. Despite the debt ceiling being pretty much at its maximum. By adding more fuel to the fire in what is already an extremely hot inflationary environment. The real risk of an interest rate rise sooner than expected is staring the US down the barrel. Not only does an interest rate hike put more pressure on your mortgage repayments. And take more money out of the household budget. Also hurts the valuation of your high multiple stocks. For anyone holding the high-flying tech stocks that trade on high multiples like Amazon, Netflix or Afterpay – beware. And when interest rates rise. The value of those stocks decreases significantly discounted back to today.
The Opportunities
With risk comes opportunity, especially in the stock market. As professional trader of 27 years. Andrew Baxter, makes mention of – within all of these fundamental. And economic challenges is the ability to make some money from them. As an example, in the situation where Biden is pushing through a $1T infrastructure stimulus package. And to ensure the American people know he’s actually doing some work. And having some exposure to basic materials is a play Andrew will be looking at.
With $1.7B being spent on building ‘stuff’. Moreover, having exposure to concrete and cement are just two examples of the opportunities that lie within the current US political tensions. And stimulus spending. On the other side of the coin. And as something a little more maverick. Also, having some exposure to crypto currency. As an inflationary hedge is also something Baxter is shaping up for his own trading account. Additionally, learn how you too can start to shape up. Also, for your own analysis just like this. And reach out to Australian Investment Education for more.
