You'd have to have been living under a rock in 2019 to not notice that things have been heating up on the domestic and global markets.
While we saw the ASX's best 6-month start to the year since 1991, volatility has increased in recent months as the US–China trade war has intensified, Brexit concerns have resurfaced and we've seen a central bank rate cut bonanza.
So, with all that's going on in geopolitics and macroeconomic conditions, is it time to consider investing defensively on the ASX to protect your portfolio?
Geopolitical tensions are a cause for concern
Global markets are inevitably tied to geopolitics, as we've seen from the impact the US–China trade war has had on the ASX performance in early August.
As the two world superpowers increased their tit-for-tat tariffs in early August, we saw the share prices of the WAAAX stocks such as WiseTech Global Ltd (ASX: WTC) and Appen Ltd (ASX: APX) plummet 15% lower on concerns of lower earnings.
While these stocks have since rebounded from the lull, we then saw Saturday's drone strikes on Saudi Arabia's largest oil refinery, which should see ASX oil stocks surge higher this morning on the lower supply environment.
With increasing global tensions and the Brexit situation still not resolved, maybe it's time to start adding a defensive stock such as AGL Energy Ltd (ASX: AGL) to our portfolios to protect against downside or cyclical exposure.
What's going on with the central banks?
On Friday, we saw European Central Bank President Mario Draghi finish up his term in a blaze of glory, reinstating the asset purchase programme to buyback 20 billion euros (A$32.45 billion) of European bonds per month.
This is all part of the outgoing President's move to do "whatever it takes" to prevent a collapse of the Euro, which has also included slashing European interest rates to just 0.5%.
It's expected that this will put pressure on both the Bank of Japan and the U.S. Federal Reserve to follow suit, while closer to home, the Reserve Bank of Australia is also tipped to slash rates before the year is out.
With all of this monetary policy manoeuvring, a big concern is that slashing rates so low and reinstating quantitative easing leaves very little wriggle room should we hit another recession in the next 12–24 months.
Given this somewhat precarious policy environment, maybe it's worth looking at a defensive hedge such as Northern Star Resources Ltd (ASX: NST) or a similar ASX gold stock to provide some downside protection to your portfolio in 2020.
