What is recession

A recession is defined by the National Bureau of Economic Research (NBER) as a significant decline in economic activity that is spread across the economy and lasts more than a few months (NBER, 2023). Economists use various indicators such as gross domestic product, income, employment, manufacturing, and retail sales data to determine whether a market is undergoing a recession.

Should we be afraid of it?

While investors tend to view a recession negatively due to the bearish sentiment and declines in economic activities, it is not necessarily all negative. Recession is a natural, unavoidable stage of the economic cycle that can help correct imbalances in the market, clearing the way for a return to growth. In the past, recessions have helped lower the inflation rate and ended the misallocation of investment capital field by dot-com or the housing bubble. 

When did the recession happen in the past?

Global economies have experienced several recessions in varying degrees over the past 40 years. However, recessions have grown increasingly infrequent and don’t last as long because policymakers have gained a better understanding of the causes of past recessions and are better equipped to handle them. 

The table below records the occurrences of recessions since 1990. 

Table 1: Global recession period and its causes since 1990. 

Can we still invest during a recession?

The histories of the financial market have shown that what goes down will eventually come back up, though the “road to recover” may be a bumpy one. As recession often comes with high-interest rates, investors have a chance to earn higher yields on their savings or fixed deposit accounts. There are also potential bargains for low-cost dividends counter in the stock market.  

Investing in fundamentally sound companies with a strong track record of weathering recessions can provide a good opportunity for long-term growth. Companies with high market capitalization, consistent dividend payouts, and undervalued trading prices, such as Singapore banking counters, may be a good choice for investors during a recessionary environment. Additionally, saving money in banks for higher interest rates is also a good option for protecting capital. 

Read this blog [sgx blog link] to know more about a safe haven to invest in a recessionary environment.

Our final thoughts 

Although a recession may inflict hardship on businesses and individuals, it is a natural, unavoidable stage of the economic cycle that can help correct imbalances in the market, clearing the way for a return to growth. When a recession hits, investors can protect their capital by saving in banks for higher interest rates or investing in fundamentally sound counters for long-term investments. 

Want to venture into a market that has global exposure and diversify your portfolio?

Open a trading account now with MQ Trader to start trading in SGX! 

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