Investors around the world are currently facing one of the most uncertain environments in recent years.
Impeachment proceedings against President Donald Trump and the presidential election in 2020 are both causing uncertainty for businesses with exposure to the US.
At the same time, the world is watching the events in Asia closely, as the Chinese economy sputters and civil unarrest in Hong Kong threatens to throw the whole region into turmoil.
Here in the UK, we have the general election to worry about and Brexit. Whichever party the country chooses at the election on 12 December, it’s clear investors will have to think carefully about what happens next.
When you add all of the above together, it doesn’t take much to realise that global financial markets are teetering on the edge right now. And the FTSE 100 is more exposed than virtually any other index market to this uncertainty.
This global stock index is exposed to both the UK’s own uncertainty and global turmoil.
Protecting your portfolio
The thing is, while the chances of a big FTSE 100 sell-off are increasing almost every day, it is impossible to tell what the future holds for financial markets.
Ever since the financial crisis, there has been a constant stream of analysts and economists predicting that a crisis is just around the corner. This crisis has never emerged. Any investor who has bet on one of these predictions has lost out on big profits.
With this being the case, I believe the best course of action for investors in this market is to keep calm and buy high-quality blue-chip stocks.
The great thing about high-quality blue-chip stocks is that they have the financial firepower to weather any economic turbulence.
Not only do these companies have the mettle to navigate turbulent markets, but they also tend to come out stronger on the other side as smaller, weaker peers struggle and collapse.
Global diversification
Globally diversified blue-chip companies like Unilever and GlaxoSmithKline were able to emerge from the financial crisis virtually unharmed, and their investors have continued to reap the benefits ever since. Even if the market falls 50% from current levels, people are still going to be buying ice cream, deodorant, and vital medications.
So, by including these companies in your portfolio, you can look past the near-term stock volatility, and focus on the long-term potential of these companies, and their brands and global distribution networks.
I believe internationally diversified resource companies such as Glencore could also help your portfolio sail through stormy seas. Apart from head office activities, Glencore has virtually no exposure to the UK economy, and its commodity trading operations provide an excellent hedge against the volatile income stream from its production business.
Stock markets might fall, but as long as the global economy continues to expand, I think that demand for resources will continue to grow, and Glencore is the largest commodity trader in the world.
The bottom line
Overall, I think there is a good chance we could see a stock market crash in December. However, nothing is ever certain in investing.
As a result, I think the best way to protect your portfolio in the current environment is the stick with globally diversified blue-chip stocks and ignore the day-to-day gyrations of the broader stock market.
