Global stock markets could be set for a fall, according to the Bank of England (BoE). Speaking to the BBC this week, Deputy Governor Sarah Breeden said that share prices today don’t reflect the risks facing the global economy right now.
Should investors be worried about this call from the central bank? I’d say no. But is it time to make portfolio adjustments? Maybe. Let’s discuss.
Could the market tank?
Breeden is concerned that investors are in a complacent mood at the moment. In her view, people are ignoring the risks.
“There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point.”
BoE Deputy Governor Sarah Breeden
And to be honest, I can see her point. I’m actually quite surprised that global markets are near all-time highs given that:
- Geopolitical uncertainty is high.
- Oil prices threaten to hit businesses and consumers.
- AI could possibly wipe out millions of jobs in the years ahead.
Personally, I wouldn’t be surprised if markets were to fall again. Because these are legitimate risks.
Be prepared and take advantage
Of course, stock market weakness is completely normal. While markets go up the majority of the time, they do have periods where they underperform.
The key, as an investor, is to be prepared for weakness. That means having the right asset mix.
Ideally, you want to have an asset allocation that matches your goals and risk tolerance and doesn’t keep you awake at night. For example, if you’re worried about the potential for a stock market crash, it’s probably not sensible to have 100% of your portfolio in shares.
It might be more sensible to have 20%–30% of your portfolio in cash. That way, if stocks fall, you’ll be less impacted.
You’ll also have firepower to capitalise on opportunities. While other investors are selling, you’ll be able to buy shares at low prices.
How I’m positioned
Personally, my own portfolio is only about 70% stocks right now. The rest is bonds, money market funds, and cash.
With this asset allocation, I can still benefit if markets move higher. However, if shares fall, the lower-risk assets will soften the blow and give me options.
Be ready to buy
I’ll point out that I’ve drawn up a list of stocks I’d like to buy if markets do fall. One name on it is Wise (LSE: WISE) – a leading international money transfer company.
I already own some shares here. But I’m keen to boost my position as this company – which I personally use to transfer money abroad all the time – continues to grow at a rapid rate.
For example, earlier this month, it told investors that it had 11.3m customers at the end of March, an increase of 22% year on year. For the quarter ended 31 March, cross-border payments volume was up 26% to a whopping £49.4bn.
Looking ahead, I expect the firm to continue growing as it offers the fastest and lowest-cost money transfers in the market. That said, a major economic collapse is a risk as is competition from other players such as Revolut.
Today, Wise trades at 27 times this year’s earnings forecast. At that valuation, I think it’s worth considering as this is a very scalable business.
Stock market weakness could present an even better buying opportunity though…
