Market Overview

10 June 2020

Some High-Tech Assets May Well Replace Cash in Investment Portfolios

The major equity markets in America, Europe, Asia and the multi-currency basket that "competes" with the US Dollar met only light turbulence on Tuesday in course of the direct recovery flight that moved much closer to pre-crisis peaks again. Well-known companies such as Apple and Amazon have managed to update their own absolute historical records for the market value of assets over the past couple of days. Facebook, Netflix and Tesla shares are very close to the same results.

These signs of V-shaped economic performance in all the large world economies have managed to warm up some active investment positions, reducing the role of the Greenback and US Treasuries as "safe haven” assets, and has allowed funds to allocate part of their capital to more risky markets. 

Securities of global corporations with their well-established business models for extracting new portions of profits on different continents are now, in fact, acting as very powerful financial tools. This raises a question whether they may replace traditional monetary savings for the moment or if this could be the case in the more distant future. After all, unlike Dollars and Euros they are seen to not be devalued so much by the work of the American and European "money-printing presses". During the pandemic trillions of digital banknotes that have not yet been provided with any new products were released. In contrast to currencies, the shares of big companies, especially in the technology sector, even benefit from the distribution of "helicopter money", having successfully survived both the temporary lockouts for production and a drop in their customers' regular income.

This is especially true for technological digital projects that are not so linked to a particular place, and their assets could be exchanged for an increasing amount of ordinary money every year with a rather high probability. Nevertheless, like any other investment tool "stay-at-home" stocks are not an ideal "safe haven", with a strong price fluctuation, when they were joining the club of temporary fallen shares during the times of a crisis. Apple Co shares purchased in mid-March have already brought investors 61.8% in less than three months, but investors who bought them six months ago at $280 per share also had to experience both fear and disappointment when they fell to $212 at the market bottom before making an impressive spurt up to the $345 target and probably higher.

Investments to top-five FAANG group (includes Facebook, Apple, Amazon, Netflix, Google) are quite predictable as they have been proved to be unsinkable and profitable, as the Nasdaq composite high-tech index just updated the landmark of 10,000 points. That indicates the new normal of portfolio investments in ETF funds or just in index CFD and futures. Even gold brought less: 25% for the year since the beginning of last summer and less than 10% since January, but it also sank during the crisis by 15% in the middle of March from $1700/toz to $1450/toz.

When considering risks it should be taken into account that the net benefit from savings in currency or bonds can either grow or completely disappear and even turn out to be negative, depending on when and at what price the currency and the bonds were purchased and depending on further exchange rate fluctuations in the Forex market. So, is it possible in a new money-over flooded reality with several years of zero or negative interest rates invented by globalist-styled financial regulators that not Bitcoins but some popular corporate assets quietly and partly may replace conventional fiat currencies, at least for savings?

It is unlikely that there is anything that could significantly affect the current market mood, with the exception of some technical corrections. This also applies to European markets, which have been struggling recently to catch up with America. Gains in the banking sector with Deutsche Bank up by 2.7%, Credit Agricole up by 2.6% and Santander gaining 2.2% from the opening European indexes are advancing. 

On Tuesday, the European Central Bank's (ECB) Executive Board member Isabel Schnabel said that as lowering interest rates remain an option for future bond-buying, this type of buying is currently more effective than negative rates. There is no evidence that ECB bond-buying delayed economic reforms in the EU. She added that quantitative easing (QE) measures have slightly reduced wealth inequality in the Eurozone. All these remarks combined with the confession that the Euro system holds about 9% of its balance sheet in gold, pushed the single Euro currency and European stocks to higher levels again. Olly Rehn, the Governor of the Bank of Finland, said that the ECB has not had a serious discussion about buying "fallen angels" bonds, which is also positive in terms of a safe ECB balance.

As for the US Federal Open Market Committee (FOMC) that will make a decision on monetary policy tonight, it should contain no surprises. The Federal Reserve (Fed) has already announced beforehand an expansion to its Main Street Lending Program, allowing more small and medium businesses to access support. This could make it clear that the Fed has no fresh sweets in its pocket. No serious talks are possible about negative rates just a few days after the remarkable US jobs report. At the same time, the Fed remains ultra-dovish and promises to feed the economy, which means the markets' rally too, until its unemployment targets of around four % are achieved. Now it is almost four times higher. So, some trading ranges may tighten ahead of the Fed’s decision but its meeting does not seem to provide a source of thrill or anxiety.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.


Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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