Investors need to accurately calculate their risk profiles and show added cautiousness in the current market, Investec Asset Management says.
While it will take some time to understand the full extent of the correction, Investec says the worst of the recent crisis should now have passed.
“We have been concerned about the mis-pricing of credit risk for some time,” its strategy team says.
“Despite the fact that almost every market commentator has cautioned that at some stage a correction would come, when the correction did finally arrive, no amount of pre-warning could ease the pain.”
In times like these, the best investors could hope for was to ensure their portfolios are properly diversified, Investec says.
“Making fundamental changes to your portfolio during extreme turbulence is tantamount to trying to change sails during a gale,” it says.
“Get your risk profile right, construct an appropriate portfolio and sail it through whatever conditions markets experience with only minor changes of course and in the trim of the sails.”
Investec says the US Federal Reserve has “struck a sensible balance” by lowering its discount rate.
“The Fed has to be wary of bailing out those who need to suffer, while at the same time avoiding a global credit crunch,” it says.
“If the Fed simply came to the rescue when things went wrong every time people took on risk, risk would never be priced correctly.”
Investec says UK consumers and house-buyers need to show short-term cautiousness.
“The consequences will be with us for some time as they work their way through the system, but the trend should be improving,” it says.
“Markets are likely to remain choppy, but the worst should be behind us and the long-term trend should remain firmly upwards.”
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