Mitigating investment risk through diversification amidst Covid-19

By Doreenn Leong

The COVID-19 pandemic has created massive uncertainty in the investment market, and this is not an isolated case. All over the world, foreign investors are navigating uncharted waters as stock markets are becoming increasingly difficult to predict in the current economic climate.

Malaysia’s FBM KLCI closed at 1,490.14 in end May, its highest level since March this year, although this may not necessarily signify the end of the ongoing crisis. The record high number of traded shares indicated active participation rate from retail investors in Malaysia, partly attributed to the country being home to the world’s largest glove makers of which demand for protective equipment has surged during the pandemic.

 Nevertheless, investors should ensure that they continue to diversify their investment portfolio especially during these times.

Many experts believe it to be a protracted recovery from the COVID-19 pandemic. Therefore, investors should remain cautious of the recovering stock markets and hence, should be planning their investment decisions wisely, particularly amid the economic uncertainty. At the end of the day, the fact that a vaccine has yet to be found very much points toward concerns surrounding the potential threat of the virus and its subsequent economic implications in the long run.

Mitigating risk

While the effect of COVID-19 remains uncertain and continued volatility can be expected, it is wise for investors to employ strategies to enhance returns, whether the market shifts violently up or down. Diversification helps reduce overall portfolio risk by allocating investments into different asset classes and hence reduces the risk of a single investment or asset class significantly impacting the performance of the overall portfolio, leading to more stable returns over time.

Funding Societies Malaysia co-founder and CEO Wong Kah Meng said, “It is ever more critical for investors to ensure that their investment portfolio is well diversified amid the current market uncertainty. Whilst there could be opportunities for investors to make tactical investment decisions given the volatility in capital markets, investors should also be aware of the increased correlation across traditional asset classes and hence the greater need for diversification beyond traditional asset classes such as stocks and bonds. As such, P2P investment could play a key role in the diversification strategy for investors.

“Aside from diversifying their investment portfolio, we encourage risk averse investors to focus their P2P investment strategy on shorter tenure investment notes or collateralised investment notes which are more secure whilst still providing decent returns. Overall, we believe that P2P financing serves as an attractive investment option which caters to the needs of a wide variety of investor risk – return profiles,” added Wong.

Funding Societies provides a seamless and user-friendly investment process supported by best-in-class customer experience. Investors can easily invest in local SMEs and earn attractive risk-adjusted returns compared with other forms of traditional investment options, with interest returns of up to 14% per annum (p.a.) after fees with minimum investment amount from as low as RM100.

The platform has also recently taken a multi-pronged approach to further tighten its risk assessment processes, which includes assessing the impact of COVID-19 and MCO on their SME clients, reviewing existing SMEs’ exposures, and implementing action plans for impacted SMEs. These stepped-up efforts ensure their clients’ investments remain protected while simultaneously continuing to lend a helping hand to support the under-served SMEs who are affected by the outbreak.

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