Where Now For Investors?
Investment opportunities and pitfalls post-COVID.
The financial markets have been in a volatile state ever since the beginning of the coronavirus pandemic. This volatility has triggered sharp price movements, leading to the potential for significant gains as well as a heightened risk of substantial losses. All that being said, it looks as though we could be witnessing the beginning of the end of the pandemic.
The UK is hoping to end its current lockdown restrictions by 21st June. And across the pond, the passing of the US$1.9 trillion package in the US is fuelling a resurgent stock market. There is also talk of another large trillion-dollar infrastructure package, which bodes well for investors craving more stability and bullish runs.
With all this in mind, it is interesting to consider what is likely to lie on the horizon.
The FTSE
These are some of the factors suggesting FTSE100 gains over the medium term, notwithstanding a deeper global stock correction after recent equity gains. This has to do with the fact lockdown restrictions are ending and companies are beginning to recover from the initial disruption caused by COVID-19. We should also remember that Brexit uncertainty is no longer looming over the heads of investors. While there will still be teething issues, investors can plan for the future with much more certainty. The seasonal pattern for the FTSE 100 is also strong with seasonal gains typical at this time of year.
The counter argument is that the FTSE is actually being overvalued at the moment. Some see a bubble forming which could lead to a market correction. It is difficult to tell whether this is the case, but nevertheless, it is important that investors are prepared for such an outcome.
Gold
Gold seems to be losing its shine at the moment. After its record performance last year, the price per ounce has been hovering below US$1,800. This is despite the price surpassing US$2,000 in August 2020. The precious metal is a safe haven asset, meaning that its popularity increases during times of volatility and uncertainty.
On that basis, if lockdown measures are lifted as planned, we are likely to see more investors moving their capital out of gold and into other assets, like stocks, shares and bonds. This outflow has been reflected in ETF holding in gold falling for three straight weeks.
Cryptocurrencies
We can’t talk about financial markets without acknowledging cryptocurrencies. 2021 has so far been a promising year for Bitcoin (BTC). Public endorsements from individuals like Elon Musk have seen the price of an individual BTC break the US$60,000 threshold for the first time. Many believe this bullish run will continue as more institutional and retail investors begin to accept that BTC and other cryptocurrencies are firmly establishing themselves as credible digital currencies.
Of course, cryptocurrencies are very volatile by nature. As such, we could see governments introducing regulations over the coming year to better protect investors.
Cash savings
With interest rates at 0.1%, cash being stored in traditional savings accounts is positioned to lose value over the long-term due to rising inflation. Despite this, a HYCM survey of over 900 UK-based investors at the beginning of the year revealed that cash savings is the most common asset held by investors. What’s more, 38% of investors said they will be putting more money in their savings account in 2021.
It goes to show that investors are using cash savings as a part of a hedging strategy that reduces their risk exposure. However, as things return to normal, I would expect more investors to start moving their capital into other assets seeking better returns.
Overall, investors should always plan carefully when considering an investment opportunity. This means doing the necessary deep diligence, having clear investment goals in mind and understanding your risk and return ratio. Doing so ensures investors can readily adapt to any trends or events that might be around the corner.
Note: Cryptocurrencies are not available for trading under HYCM (Europe) Ltd and Henyep Capital Markets (UK) Ltd.
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Giles Coghlan is Chief Currency Analyst, HYCM – an online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders. HYCM is regulated by the internationally recognized financial regulator FCA. HYCM is backed by the Henyep Capital Markets Group established in 1977 with investments in property, financial services, charity, and education. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.
