Liquidity Strategy to Weather Stock Market Volatility

Stock markets around the globe have been volatile this year and most analysts predict this pattern of pullback and recovery will continue throughout 2018. Uncertainty in the world, either because of the election cycles in Europe, the protectionist rhetoric in the U.S. or potential global trade wars, the markets will remain volatile for the foreseeable future.

“IS EVERY PULLBACK THE BEGINNING OF A BEAR MARKET? – A bear market should not be confused with short-term pullbacks or corrections. A pullback is a market decline of approximately 5 percent–10 percent and they are quite common, occurring on average once per year and lasting about a month. A correction is a market decline of around 10 percent–20 percent. Corrections do not happen as frequently as market pullbacks, occurring on average once every three years and averaging about five months in duration.”

Interest rate rises are a concern for investors and continue to overshadow market sentiment. After years of ultra-low interest rates, times are changing and the U.S. Federal Reserve (FED) has hiked interest rates and promises more of the same this year. Inflation meanwhile is close to the two percent level in many countries and in an environment of rising interest rates globally, both traditional bonds and bond-like equities appear to carry more risk.

In Asia, market news and fundamentals remain generally sound but there is no escaping the evidence that cross-border contagion has impacted the region in both the currency and equity markets and central banks in Asia are beginning to follow the same trajectory as the FED.

Signs that the U.S. and many European economies are growing, has helped stocks move higher and take the sting out of the losses in the first few months of 2018, however, investors are nervously watching for any more volatility and are looking for strategies which will weather the continued upheaval and protect their investments in this uncertain environment.

It is natural to be concerned about a portfolio when there is stock market volatility, but there are ways to mitigate risk and stay focused on a long-term investment goal. Non-recourse loans provide downside protection because if a stock value falls below a loan value, the borrower can just walk away from the loan. This strategy still allows an investor to profit if the stock increases, and because market volatility can also create good buying opportunities, non-recourse stock loans can offer sizable instant access to liquidity for shareholders. After a significant market decline, many stocks are undervalued, and having the ability to raise capital quickly means investors can acquire high-quality companies at a lower price.

Both companies and individuals who require quick access to capital to deal with economic situations can make use of a non-recourse loan on any free-trading or publicly traded securities.

Making use of a non-recourse stock loan is one of the most effective ways to generate funds in unsettled markets. The ability to walk away from this type of loan, without any damage to the borrower’s credit rating is a unique feature of this type of securities lending and allows a borrower to access a large chunk of capital tied up in a portfolio, quickly.