Investor behavior in a bear market is predictable, risk aversion and the 'flight to safety' mindset causes investors to flee emerging markets for the perceived relative safety of developed economy government bonds
Investor behavior in a bear market is predictable, risk aversion and the 'flight to safety' mindset causes investors to flee emerging markets for the perceived relative safety of developed economy government bonds, and with reference to equity markets, they exit small cap shares for the so-called 'blue chips'.
"In this particular bear market, investors, in their flight to safety, are also and inadvertently, fleeing from the quality business operations that remain intact in the small cap stocks," said Cheng Ying-Git, Director of Trading at the TWCX (www.twcx.org). "And in Taiwan, 'small cap' also means the 80-plus companies listed on the TWCX board. But this is not always the wisest decision because over a medium period the inflation rate and the low interest rates make your portfolio decrease. A smart alternative is to invest a part of the portfolio in commodities. "
Mr. Ying-Git highlights that when markets start their downward trend after several years of a bull run, investors move into the so-called quality, large, longstanding counters. "Until a very short time ago, international companies such as Lehman Brothers would have easily been included in this category. However, some of these perceived blue-chips are in severe trouble and some are not even around anymore."
Mr. Ying-Git says that in such unchartered territory with financial and economic crises as never seen previously; investors need to revisit what they consider as 'risky'. "TWCX (www.twcx.org) trading products all face the same risks - whether these are interest rates, currencies, economic recession, or quality of management. There is no sound reason why smaller stocks should be less equipped to deal with the crises than their larger counterparts. And with regard to the opportunities that companies are facing, the TWCX commodity and futures trading products are exposed to all the same upsides as the big caps, coming from government infrastructure spend, growing telecoms markets, etc."
Taiwan Commodity Exchange (TWCX) (www.twcx.org) is a world class commodities exchange based in Taipei. It has operated as a market place for the trading of financial products to connect buyers and sellers in four different markets: commodities, equities derivative, foreign currency trading and interest rate products.
TWCX is one of the top exchanges in the world in terms of Market Capitalization. TWCX is the market of choice for local and international investors looking to gain exposure to the leading capital markets in Southeast Asia and the broader Asian continent.