Investors advised to reduce exposure to tech stocks, cryptos in April

[Photo by MK DB]

Investors should reduce risky assets in their portfolios, especially technology stocks, cryptocurrencies, and real estate investment trusts (REITs) in April as it is difficult to logically explain the rise of both risky and safe assets last month, experts advised on Sunday.

According to NH Investment & Securities Co., tech stocks surged in all major markets in March. South Korea’s tech-heavy Kosdaq index rose 7.4 percent from 791.6 on Feb. 28 to 850.48 on March 30. The rise was driven by EcoPro Co. and EcoPro BM Co. shares, which account for 9 percent of the entire Kosdaq market capitalization. The two stocks gained by 78 percent and 36 percent, respectively, during the same period.

Similarly, the Nasdaq index, which is dominated by tech stocks in the U.S., rose by 4.9 percent in March, more than twice as much as the S&P 500 index, which rose by 2 percent.

Big tech stocks, such as Apple Inc., the world’s largest market cap company, rose by 10 percent over the past month, contributing to the overall rise.

Industry insiders note that March was an extraordinary month for the financial markets as both risky and safe assets saw significant gains despite concerns about the fallout from the Silicon Valley Bank bankruptcy.

Investors poured their money into bitcoin and traditional safe-haven assets such as gold. Bitcoin recorded its biggest monthly gain, rising 19.5 percent in March and nearing $30,000.

Some argue that bitcoin has emerged as a new safe-haven asset due to the phenomenon of virtual assets rising in a crisis, while others dispute the claim.

[Photo by MK DB]

Gold, a traditional safe-haven asset, also rose significantly, with a one-month gain of 8.4 percent. It reached $1,980.4 per troy ounce last month alone, surpassing the psychological resistance level of $2,000.

“Long-duration growth stocks rose with a significant rise of gold and this represents the expectation of a future decline in interest rates,” said Pyun Deuk-hyun, a senior analyst at NH Investment & Securities. “Commodity prices, including gold, are expected to react strongly to interest rates and the value of the U.S. dollar in the future.”

Pyun added that typically, when the U.S. Federal Reserve lowers its benchmark interest rate, it results in a weaker dollar, which in turn pushes up commodity prices.

In addition, yields on safe-haven bonds also rose as interest rates fell sharply in March. The KIS Composite Bond Index, a comprehensive measure of the Korean bond market, rose 2.4 percent last month, while the U.S. Aggregate Bond Index gained 1.9 percent over the same period. Given that bonds typically yield between 5 and 6 percent annually, this is equivalent to a six-month return achieved in a single month.

Bond market experts forecast both short- and long-term treasury bond rates will go down this year due to concerns about a slowing economy.

“Interest rates have fallen sharply in March and further strength in bond prices may be limited,” said Shim Chang-hoon, head of fixed income at Shin Young Asset Management Co.

Experts believe it is advisable to increase the allocation to safe-haven assets against a recession.

“We are likely to see the return of the 60/40 equity/bond portfolio starting this year,” said Pyun. “For the stock market, downturns are often a good time to increase returns, so it is important to set aside liquidity in advance to be able to buy low in the event of a downturn.”