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Investors can hedge against a stock market correction

28 December 2013, De Financiële Telegraaf

Now that Wall Street is racking up record after record, the discussion between bulls and bears has broken out in earnest again. The higher prices rise, the greater the likelihood of a correction. However, for many investors, the fact that all the lights are set to green is a reason for them to get back into the market. A far smaller group is justifiably concerned about the next bubble, though. Yet to prepare yourself for the bubble bursting – and even profiting from it – can tend to be rather tedious.

There is every reason to be optimistic about equities in 2014. The economy in the US is recovering, banks and fund managers are bullish about equities and with low interest rates, investors have few other avenues to explore. Investors are jumping aboard because they are afraid about missing the boat. Which is a perfect combination when all the lights are set on green. But that is precisely also one of the main causes behind a bubble: unbridled optimism. Many analysts agree that the support measures provided by the central banks have inflated government bonds to bubble proportions. However, equity prices are also rising amid this sea of liquidity. In this instance, the ‘bubble predictors’ are in the minority, although the likelihood of a correction on equity markets – a less drastic fall – is expected more broadly. [...]


Macroeconomics

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