Robin Holdings
March 25th, 2022
The economic and social instability was externalized with intensity during the escalation of the COVID pandemic at the end of 2019 and the beginning of 2020. This epidemic context is an example of weakness and financial risks given the hyper connections that exist in economies around the world. An unequivocal sign of the fragility in which we live and how vulnerable we are as a society to exceptional, inconceivable and difficult to control risks.
The current financial conditions and implications did not develop overnight. Previous pandemics; for example, the SARS epidemic of 2002-2004 -caused by the Severe Acute Respiratory Syndrome caused by SARS-CoV- evidenced integrated and dynamic behavior patterns in the returns of the financial securities of the countries infected by the virus. For its part, the 2008 mortgage derivatives crisis had a negative impact on the economies’ production and supply chains. For example, in Mexico, exports fell, thanks to the decline in industrial and manufacturing production.
Therefore, the evaluation of the impact that the current pandemic will have on the financial markets must consider factors such as: the interactions between financial assets, the effect of technological development (mainly, on the scalability of the flow of information), the “trading ” and the presence of digital currencies and “assets”. The latter operate not only as a store of value during periods of market turbulence, but also as a source of portfolio diversification.
Recent analyzes of the implications of COVID-19 in the Chinese financial markets show that the pandemic amplified the global economic crisis from greater instability and volatility in the prices of Securities on the Shanghai and Shenzhen Stock Exchanges, caused by an accumulation of debt and a considerable reduction in liquidity levels. However, investors who moved their investment portfolio to commodities related to oil, gold, and digital currencies have found evidence of an inverse (negative) relationship with some International Stock Exchanges, thus considering substantial benefits to diversification. handbags in the present.
Given this scenario, it is suggested to consider digital assets and currencies in investors’ portfolios. A significant diversification option for risk-averse or non-risk investors with a focus on traditional cryptocurrencies. It is important to take into account that any diversification within digital assets and currencies must be based on different time horizons and take into account the characteristics of traditional markets and their hyper-connectivity. In other words, the greater the interconnection between the “traditional” markets and the more unstable it is because they are sensitive to liquidity and volatility, the greater the relevance of diversification and the participation or preponderance of digital assets.
