A global strategy chief shares 3 ways investors can navigate increased stock-market volatility in the coming months

• Willem Sels, HSBC Private Banking global chief market strategist, expects volatility to pick up in the next few months due to the US election and a renewed uptick of COVID-19 cases.
• In a Tuesday email he shared three strategies for how investors can manage the stock market volatility ahead.
• One of his strategies is to avoid the lure of low-quality stocks just because they're cheap. Instead, Sels said to seek out companies with strong balance sheets and long-term growth potential.

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The upcoming US election and an uptick in cases of COVID-19 are leading to increased volatility and causing some investors to step back. Willem Sels, HSBC Private Banking global chief market strategist, expects volatility to pick up in the next few months, but said investors should remain in the market. In a Tuesday email he shared three strategies for investors to manage what's ahead.

1. Focus on quality assets

"What the September correction has shown is that, when valuations are high, it is unwise to go into lower quality assets just because they are cheaper," Sels said. Investors should seek out companies with strong balance sheets as COVID-19 will continue to weigh on cash flows for longer than expected. For long-term growth, Sels is watching companies related to climate change, health technology, 5G, and the online economy.

2. Look for areas with promising growth

Sels also said he's looking for areas with "promising growth" in the short and long term. "The US economic outlook currently looks better than in Europe, and data in China and Korea is more positive than in other EM countries," he added.

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3. Diversify your portfolio

"Diversification remains paramount, but it is not easy to achieve," said Sels. Although gold has moved in tandem with stocks in the past quarter, he still sees it as a good tail-risk hedge in a portfolio. He also suggested investment-grade bonds for diversification.

The strategist cautioned against trying to "time the market" in this investment environment. "Instead, investors should focus on fundamentals, take a selective approach and resist the calls of the 'cheap' assets," Sels said. "This should help to transition the current uncertainty and capture the market upside we foresee in coming quarters."