Balancing the equity bulls

Despite a set back last week, as fears over the Spanish economy damaged investor sentiment, the outlook for global equities has been relatively positive in recent months.

A gradually recovering world economy combined with strong corporate balance sheets and attractive market valuations all point towards some good news for equity investors over the next decade.

There is a balance to this bullish outlook.

Fund manager and contrarian investor Marc Farber, who has the self-explanatory nickname ‘Dr Doom’, is warning about a decline in technical factors which suggests a big sell off in risk assets is on the cards.

Farber, who accurately predicted the stockmarket crash in October 1987, says the market correction is already underway and could result in a 10% or 20% fall in equity prices.

He explains that the New Year equity rally lacked volume and technical factors have been in decline over the past two months, particularly in the US stockmarkets.

Whilst not everyone is as bullish as Dr Doom, risk management remains very important for investors.

One of the best ways to achieve this is through holding a well diversified portfolio with exposure to the various investment asset classes. Introducing ‘negative correlation’ between different types of assets is a good way to ensure short-term stockmarket corrections do not derail the long-term performance of your overall investment portfolio.

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