Diversification Is The Answer to Geopolitical Uncertainties: Hemant Sood, Ludhiana

Contrary to what many believe, having a mere understanding of financial principles is not enough. You need to be on your toes twenty-four-seven, monitoring and tracking the latest developments around the world, analyzing them from different fronts and assessing the impact of each front on your portfolio.

Additionally, this complexity increases further when these developments intensify in numbers, something we are witnessing these days.

From the political crisis in Bangladesh in the east to the escalating conflict between Israel and Iran in the middle to the U.S. presidential election in the west, every part of the world is witnessing instability.

Notably, these developments have a significant capability to sway market dynamics, leaving investors worried about the security of their investments.

We reached out to Hemant Sood, renowned Finance expert and Managing Director at Findoc Investmart, a leading finance company headquartered in Ludhiana. Sood had some great pieces of advice that he wholeheartedly shared with us, and we will share that all here.

Geopolitical Tremors Reflect in Market Graph 

We are in one of the most geopolitically tumultuous times. As we already know, every corner of this Earth is witnessing instability in some form or the other. In the Southeast Asia, Bangladesh is grappling with significant political upheaval after its prime minister resigned amidst widespread protests and violence.

Then, there are escalating tensions in the Middle East as Israel and Iran prepare for a potential military confrontation, heightening the risk of a broader regional conflict.

“Geopolitical instability, like what we are witnessing in case of Bangladesh and the Middle East, underscores the importance of diversification strategy. Uncertainty caused by geopolitical turmoil can lead to market vulnerability, currency fluctuation, and regulatory and policy shift in general. Moreover, we all know that if something happens in the Middle East, it has global repercussions as it impacts global oil prices and international trade routes.” suggests Hemant Sood.

He further explains, "To overcome these challenges, I think there is no better way than broadening your portfolio. However, even when you are diversifying, you cannot randomly choose your options. The best way is to carefully choose your asset classes and regions to have an appropriate cushion taking care of risks associated with any single area or sector,"

On the question of the options to diversify investment, Mr. Sood replied, "Allocating investments towards gold, U.S. Treasuries, or stable currencies can protect capital.". These assets traditionally perform well during market turmoil, providing a buffer against potential losses.

Elections in US Matter

Another most important development happening right now is the U.S. elections. This is because the US enjoys the most pivotal position when it comes to the global economy. And apart from its obvious geopolitical influence which acts as significant indirect force, there are two major and direct reasons.

First is its colossal economy, which accounts for 26.3% of global GDP.

For a clear perspective, a 1% change in the US economy will have an impact of around 0.25% on its global counterpart, which is huge considering that the average growth rate in the global economy typically falls between 2% to 4% annually. It was 3.5% for the past decade. This will translate to trillions of dollars in real-world impact.

The second important reason is that the US dollar is the world's primary reserve currency, involved in about 88% of all foreign exchange transactions worldwide and accounts for nearly 60% of global foreign exchange reserves held by central banks. (Federal Reserve)

Hence, any change in US monetary policy that comes with changing regime will certainly have an effect on the currency exchange rates, global liquidity, and the stability of the international financial system.

Sharing his take on the U.S. elections, Mr. Sood said, “The outcome of the U.S. elections can significantly impact various sectors. With potential shifts in policy, areas like technology and infrastructure could be heavily influenced by the administrative agenda.”

Adding further, he said, “There have been multiple examples in the past when we have seen. For example, Obama administration's focus on renewable energy led to increased investment in solar and wind technologies. But when Trump entered the White House their emphasis on deregulation spurred growth in the fossil fuel industry. Additionally, the Biden administration’s focus on infrastructure and clean energy led to substantial funding and initiatives aimed at modernizing transportation and energy systems. The important point is that investors should stay informed on political developments to strategically align their investments," Mr. Sood points out.

Indian Investment Strategy Need Balance: Hemant Sood, Ludhiana

Amidst all of these, Indian economy is projecting impressive numbers with expected GDP growth rate in the range 6.5% and 7% in 2024-25. (Press Information Bureau)

The major driving factor includes the prioritization of infrastructure spending by the Indian government, with capital expenditure increasing by 28.2% year on year. This has been further fueled by improved consumption prospects, particularly in rural areas as was noted by IMF. (Press Information Bureau)

However, challenges such as inflation and rising household debt are not to be overlooked. "Investors need to monitor inflation trends and household debt levels, as these could indicate broader economic stress," Hemant Sood cautions. He advises, “Investors need to adopt a balanced strategy. One that equally focuses on sectors poised for growth like infrastructure and consumer goods, while also incorporating defensive assets to hedge against inflation and potential economic slowdowns. Again, I would say, diversification will be key here."

Conclusion

The current global and regional economic dynamics demand a well-thought-out investment strategy. Staying informed about geopolitical and economic developments and maintaining a diversified portfolio is important to make the most out of your investment.

As his concluding remarks, Mr. Sood added, “These are uncertain times, the key to successful investing lies in adaptability and vigilance.”

 

 

 

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