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Is now the best time to invest?

23 Mar 2021 09:33 AM

The global economy has suffered a lot from the Covid-19 pandemic, and fears of a recession are becoming more prominent after companies closed down, air traffic was suspended and global demand declined at an unprecedented rate.

In fact, it was not only governments or decision-makers who struggled to find solutions to the reality of the decline in growth rates, but also, many people around the world lost their jobs and unemployment rates rose to their highest levels.

Once signs of stability began to show - countries gradually reopened and coronavirus vaccine distribution picked up, an increased risk appetite dominated the markets and the desire to diversify investments increased, particularly after the idea of losing jobs became dominant once companies closed their doors to combat the spread of Covid-19.

Why should everyone start investing now?

There are several motives supporting the idea of diversified investments, especially trading in the financial markets:

Low interest rates

Most central banks around the world were forced to cut interest rates to their lowest levels historically, with the onset of the Covid-19 outbreak, to prevent the economy from sliding into a recession.

Low interest rates encourage investment and spending, which may drive growth at a time when global demand suffers.

As global demand recovers, central banks have confirmed that they intend to keep interest rates low, until 2022 at least, to support the global economy and encourage spending and investment.

Fears of rising inflation

Inflation is defined as the increase in the prices of goods and services and the decrease in the purchasing value of money. As interest rates fall, investors tend to increase borrowing rates.

Indeed, other stimulus measures that governments and decision-makers resort to, from increasing government spending and QE programs, portend the possibility of a huge increase in inflation in the coming period.

In the wake of recent developments, many institutions and central banks raised their inflation forecasts, and the IMF raised its inflation growth forecasts for 2021 to 1.6%, while the US Federal Reserve raised its forecast from 1.8% to 2.4%.

Consequently, with the fast-paced decline in bank interest rates, investors turned to the financial markets as a better opportunity to find returns in line with increases in inflation, especially since there was an increase in risk appetite.

Exchange rate fluctuations

Since the beginning of the outbreak of the pandemic, the movements of financial markets, especially currencies and commodities have been the most volatile. With central banks and governments interventions in the markets and the adoption of new measures to support economic growth and face the challenges facing the economy, currencies have suffered from violent fluctuations.

Thus, diversifying investments reduces the presence of one negative factor that affects your entire portfolio, as investing comfortably revolves around profit in the long run.

What happened to the Turkish lira is the best proof of the importance of diversifying investments

The Turkish lira has suffered from violent fluctuations over the past years, with the government mainly interfering in the decisions of the central bank, despite decision-makers' efforts to soothe market concerns about the Turkish economy.

The Turkish lira collapsed at the beginning of the week, dropping about 17% of its value against the US dollar, after President Recep Tayyip Erdogan's decision to dismiss the head of the Central Bank.

The currency fell to levels of 8.3970 in early trading and after a sharp decline, the Turkish lira regained some of its gains, stabilizing at about an 8% decline against the US dollar, after Finance Minister Lotfi Elvan indicated that Turkey would abide by the rules of the market.

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