Global economy is going through a challenging phase. With the onset of tariff war between USA and China, a new era of economic environment has begun. Due to this, global investment opportunities are facing challenges that are not heard of, at least in the past few decades . This present condition assembles fresh and renewed risks for global investors too.

This article tries to bring up five key areas that a global investor must know before deploying capital in this current situation.

1. The Strengthening U.S. Dollar

The rest of the world economy is under deep chaos mainly due to rise in oil prices. All oil importing nations have been hit hard. Turkey and Venezuela are facing generational crisis. Peripheral Europe, mainly the infamous group of PIGS (Portugal, Italy, Greece, and Spain) nations are still reeling under huge debt burden. . India is also in the same league but the impact of dollar strength has been pretty much muted compared to the rest of the world. However, dollar continues to stand strong.

The U.S Dollar index has risen almost 10% in the past 6-months. As dollar is getting costlier, the currencies of emerging  economies are losing their sheen. For example,Turkish Lira had recently experienced a free fall, losing almost a third of its value within a short span of few weeks.

India is feeling the heat too. Rupee dropped to an all time low, and continue to make lower lows. The situation is a drag for non U.S.-based investors. In order to win trade advantage they are weakening their currencies. The results are escalated trade tension and tighter global financial conditions along with slow economic growth.

2. Fading Global Economic Growth

China is losing its growth momentum. The situation is equally gloomy for Europe and Japan .The economic data surprisingly did not match with the expectations of the economists. It poses a serious risk for the investors. India has been doing exceptionally well when it comes to growth, thanks to several diligent and pro-active steps taken, yet the spillover effects from external sources in the short-run could not be ruled out.

According to the current reading of global composite purchasing managers index (PMI), the global economic condition appears to have stabilized. In the beginning of 2018 it was decelerating. However, experts are not negating the chances of renewed decline of economic growth around the world.

3. Geopolitical Factors

Geopolitics remains an important factor and stands tall among the top five global investment risks to observe. A potential military threat jeopardizes global economic conditions. In the beginning of the year, the escalating military conflict with North Korea created tension in the market. A slow global market together with trade conflict put great impact in market performance at that point.

4. Chasing For Returns

The single prime motive of an investor is to chase returns and it is quite obvious. Predicting investor behavior gets easier by monitoring the way they chase return. The five year rolling return of major world stock market indices have faded this year due to slump in the global economy.  Overall investors’ sentiment towards buying has turned negative recently.

5. Rising Inflation

Inflation remains a key element to watch for every investor. Sudden hike of interest, more quickly than expected, puts investors in risk. When inflation rises globally, the central banks get forced to hike interest rate. It directly hits investors as rising rate of inflation makes loans dearer to industries. Most world banks are increased their interest rate  rather quick and unexpectedly in the first half of 2018. It was different from what they did in last 6 years.

Global recession may not be on the card in 2018 but its possibilities cannot be refuted in 2019. Having a diversified portfolio along with proper exit plan for unexpected outcomes are the key essentials of successful investing.

Read our insight on how to benefit from opportunities that may arise from an Emerging Markets’ turmoil.


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