The year is looking to finish strong as global markets are continuing to rally against poor outlooks at the start of 2019 to new highs. At the start of 2020, the big question is whether this growth would carry over to the new year, and if it’s an opportune time to invest.
‘A good year for trade’
Despite the fear of volatility due to the US-China trade war, both markets have come out of 2019 stronger with the China A50 strengthening by 27.06 percent since the end of November.
At present, the S&P 500 index has soared more than 25 percent since the start of the year and is projected to continue to increase by the end of the year. Other US indices NASDAQ100 and DOW30 have also seen steady increases throughout the year.
Toby Wu, analyst for social investment platform eToro, said in an interview: “2019 was a good year with market indices breaking new highs, especially the US exchanges.”
Although there was initial worry with the decline in the growth of manufacturing across the globe, it is seen to have stabilized in Q4 of 2019. The Purchasing Managers’ Index (PMI), which reflects the development of the industrial sector, has recovered to well above the 50-point mark having dipped in the latter half of Q2.
Unemployment rates in the US have also lowered from a high four percent at the start of the year to 3.6 percent in November.
CFRA sees “sustainable growth” to carry over to the incoming year, expecting the S&P 500 to close at 3,435 by end of 2020. This growth has been largely credited to the stabilization of manufacturing as well as the Federal Reserve’s easing, lowering interest rates by 0.25 percent and injecting more liquidity into markets. Just last December 20, the Fed injected USD 26.7 billion in liquidity into US markets as part of its USD 60 billion dollar-per-month Treasury purchases.
In Southeast Asia, Vietnam’s index came out on top in the region as the strongest market, outperforming Singapore’s STI. VN INDEX is up by 5.39 percent while STI rose by 3.8 percent at the end of November.
“Historical data shows that from the tightening to the easing stage, the major global stock markets tend to perform well, often showing that the stock markets of developed countries are larger than those of emerging markets,” Wu commented.
He added that if the impact of risk events is ruled out, stock markets covered by easing policies such as the US, European and Indian stock markets have great growth potential in the coming year.
Investing in 2020
While global markets are experiencing continuous growth throughout 2019, this is predicted to taper off in the near future. The new year will be very important in setting the market tone — whether the market will remain a bull trend or usher in a turning point.
Entering the new year, global debt has reached new heights while the US General Election would usher in a cloud of uncertainty across global markets. The US-China trade war is still ongoing, but is close to a first phase deal which would hopefully ease the tension moving forward.
Wu notes that after many large central bank water releases, the global economy will generate resistance to liquidity injections. He cities Japan’s current weak QE policy. The marginal effect of interest rate cuts and loose monetary policies are also declining.
However, certain areas are predicted to grow even more despite the potential for risk in 2020. Technology companies, particularly those in the semiconductor sector such as Intel, AMD, Micron, NXPI and Skyworks. This growth is largely led by the demand for higher computing power and telecommunications updates on the road to 5G. Recently, AMD’s stocks have been declared by many analysts as some of the best performing this year, following the excellent reception of its latest processor line.
Fintech is also a sector that is predicted to grow next year, particularly in the area of Decentralized Finance or DeFi.
In commodities trading, gold will continue to flourish. “Recent trends show that, gold has managed to hold up even when the dollar has strengthened. This could mean that investors do see a potential slowdown in the global economy and are happy to hold gold in their portfolios,” noted Wu.
Mitigating risk in trade
According to Wu, the best way to hedge risk when trading is diversifying one’s investment portfolio. “As an investor, adding safe-haven assets and increasing defensiveness is a good call, especially in the face of the Gray Rhino in the global economy,” he added.
He said that for aspiring traders, eToro’s community of more than 12 million multi-asset traders spanning different global markets provides them with a transparent view of the movements in different markets from stocks to crypto assets.
Aimed at leveling the playing field when it comes to trading, eToro’s News Feed and Copy Trading features allow them to learn from or impart knowledge to other traders in the platform. Furthermore, traders have the ability to see profiles of other more experienced traders and understand how they diversify their portfolios or what trading strategies they adopt.
“For the first time, everyone has the opportunity to invest in financial markets and at least have the ability to take control of their financial future,” said Wu.