Did Alternative Assets Shield You From Covid-19 Volatility?

The assets closely linked to stock and debt markets could not stave off the losses

- Lokeshwarri Sk

With the pandemic raging across the globe, financial markets were in a state of panic in March. There was broad-based selling across asset classes as risk aversion spiked.

Equity markets lost between 30 per cent and 40 per cent from their peaks and bond yields surged as large stimuli were rolled out by almost all countries.

Alternative assets, which are different from conventional assets such as stocks, bank deposits, small savings, and cash, among others, are expected to perform better than conventional assets in such periods. It’s because they are expected to be less correlated with traditional markets and provide a hedge against volatility.

So, how did alternatives perform in the January to March 2020 period?

Gold shines and diamonds sparkle

Gold is one of the alternative assets that investors use as a hedge against financial market turbulence and for portfolio diversification. It did sell off towards the end of March, but recouped fast, to sport a strong 12 per cent gain in rupee terms in 2020; the rupee depreciation of 7 per cent year to date (YTD) also helped.

This follows strong gains of 24 per cent in rupee terms in 2019. With all countries resorting to monetary expansion and global growth set to contract 3 per cent in 2020, gold prices could remain elevated through this year.

Diamond prices, on the other hand, seem to have largely held their ground in 2020. The diamond price index, disseminated by diamondse.info, that takes into account the average retail price per carat of loose diamonds from jewellers around the web, was largely flat in the first four months of 2020.