Back in 2015, a report led by Mercer warned that investors can no longer ignore the impact that the climate crisis will have on their portfolios. Although the report was only published six years ago, the effects of the climate crisis are already being felt more deeply, with record-high UK temperatures in July 2019, unprecedented snow storms in Texas, and the first-ever loss of an Icelandic glacier. It is becoming increasingly difficult to turn a blind eye to these rapid and frightening changes.
The climate crisis is not just an environmental and social concern, but also an economic one. Business operations, government regulations, and individual’s consumption have all already been impacted. Consequently, certain climate factors will ultimately determine which investments succeed and which investments fail.
However, as with most predictions, it simply isn’t possible to forecast the trends of a changing climate with absolute accuracy. The climate may worsen quicker — or equally more slowly — than expected. Market participants could react in a way that contradicts projections. These examples of climate risk, amongst others, have the potential to shock investment performance.
What is climate risk?
Climate risk is an investment risk — the probability of occurrence of losses relative to the expected return on any particular investment. Several different scenarios could potentially occur in the future, some favourable, and some not. The same goes for the numerous different scenarios of the climate crisis. Even if investors set reasonable expectations for the future world, there is nonetheless still the potential that the situation plays out differently than anticipated, and this is known as climate risk — the threat that the climate crisis could negatively impact economic growth, inflation, and investment returns. Climate risks are commonly separated into transition risks and physical risks.
Transition risks
Transition risks can occur as society shifts toward a less polluting and greener economy. As more time passes and the climate worsens, the attitudes of market participants are likely to change, and governments will likely become more open to taxing companies that generate greenhouse gas emissions and subsidizing those that operate sustainably. 
We are already seeing increased consumer demand for greener, more sustainable products and this is a trend that is likely to continue in the coming years. Many firms will adapt their business models to accommodate such demands. These varying outcomes fall on the transition scenario spectrum, creating risk. An example of such might be a company with a large carbon footprint facing the likelihood of future regulatory costs. Another example might be a trend of consumers suddenly shifting toward companies that have committed themselves to more sustainable practices.
Physical risks
When talking about physical risks, we are referring to the potential for weather and climate to impact asset prices. A key financial concern surrounding the climate crisis is the costs associated with the increasing occurrence of natural disasters and extreme weather events. Such events force potentially unanticipated costs by damaging existing assets, restricting operations, and disrupting existing demand. Some investments are likely to be impacted more heavily than others when it comes to physical risks. Agricultural businesses, for example, are at a high risk of extreme weather-related costs.
Why climate risk is so difficult to predict
Uncertainty always makes for a lack of predictability. It is difficult to accurately estimate climate risk because the future is so unknown, even with an abundance of research from scientists. In the grand scheme of things, climate science is still a relatively young field of study and there’s still a lot of uncertainty surrounding the future of the Earth’s natural environments. Even less is understood about how the market could react to an altered climate. Unlike “investment risk”, “investment uncertainty” reflects these unknowns.
Even as climate researchers and scientists amass a greater comprehension of what has created past climate patterns, there’s still a long way to go until more accurate forecasts of physical events can be made.
It is even more difficult to predict the effects of transition events, as there is very limited data on how market participants might react in varying future climate scenarios.
Hope for the future of investments
As the years go by, climate science is advancing and becoming increasingly able to comprehend complex climate patterns, and climate economists are working on improving their understanding of the potential impacts of climate on market participant trends. Additionally, academic literature on climate finance and economics is also quickly developing. Several large organisations now exist with the fundamental goal of improving the availability and quality of data. These factors are expected to make the assessment of the climate risk of investments much simpler. Over time, investors should be better able to gauge the exposures their portfolios have to the climate crisis.
A deal to merge Fiat Chrysler Automobiles (FCA) and PSSA Group was completed on Saturday. The combined company, Stellantis, will be the fourth-largest car manufacturer in the world by production volume, behind only Toyota, Volkswagen and Renault-Nissan.
The new company will be headed by former PSA boss Carlos Tavares, with other managerial positions to be confirmed in the coming weeks. It will begin trading in Paris and Milan on Monday and New York on Tuesday.
“The merger between Peugeot S.A. and Fiat Chrysler Automobiles N.V. that will lead the path to the creation of Stellantis N.V. became effective today,” the newly merged automakers said in a statement on Saturday.
The plan to merge the two was announced in October 2019, winning the approval of 99% of investors in both companies. FCA and PSA board members finalised the deal shortly afterwards.
According to new industry figures, Stellantis ranks as the world’s third-largest automaker by sales. At close of play on Friday, the company was valued at more than $51 billion.
FCA CEO Mike Manley, who will lead Stellantis’s key North American operations, has said that 40% of the company’s expected synergies would come from the convergence of platforms and powertrains and from optimising R&D investments. 35% will come from savings on purchases, and a further 7% will come from savings on general expenses and sales operations. Overall, Stellantis expecs to cut annual costs by over €5 billion without plant closures.
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The deal will bring several high-profile brands together, with Peugeot’s Citroen and Vauxhall joining Fiat, Jeep and Chrysler under the Stellantis umbrella. PSA will also gain increased access to American markets while FCA will be able to utilise PSA’s latest vehicle platforms, including those specifically designed for EVs, which will help it to achieve new emissions targets.
2020’s COVID-19 pandemic has been incredibly problematic for financial markets. As investment professionals, we are always looking to find the best investment opportunities for our clients. Now more than ever, investment professionals need to find ways to set themselves apart from the competition and build trust amongst their clientele.
Experience in the financial sector is what gives us confidence in our abilities to play the market. However, in this volatile age, even the best investor could do with a few tools to give them unique insights and help them do their job more efficiently. If you are looking for an advantage over other professionals in the field, here are some of the best tools that can help you on your way:
Stock Screeners
Stock screeners make life easier for investors by scanning the whole stock market to provide information on average trading volume, stock prices, chart patterns, and much more. These tools allow the user to set a predefined set of criteria. For instance, an investor could set the screener to search for stocks trading under USD2 that have an average volume of at least 3 million shares. The screener will output all the stocks that fit these particular specifications. Free stock screeners can help to get you started in exploring the market.
Stock Simulators
These are also known as paper trading accounts or dummy accounts. They allow potential investors to practice fundamental analyses of the market and test out their traditional strategies without actually risking any money. In these tumultuous economic times, it’s a good idea to test the waters using a stock simulator, especially when dealing with unfamiliar stocks.
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Charting Software
If you are looking to gauge information on the performance of a particular stock, fund, or index over a period of time then you need to get to grips with some charting software. These charts are made up of using lines or candlesticks. Day traders tend to use candlestick charting software to ascertain the right time to buy and sell stocks.
Newsletters
Keep on top of the latest financial news by tapping into the top trading newsletters. These are expertly crafted emails that are intended to tell traders about any unusual market movements, new developments, or innovations in the field. They also offer some interesting insights through articles written by experts. Depending on the particular newsletter you’ve subscribed to, you may receive as often as each morning or as sparsely as once every quarter.
As frequent traders, it is important for investment professionals to have the latest information available to them. The stock market is an incredibly fast-paced place, so having the right insight into prices, movement, and charting patterns. The type of tools discussed here offer us useful, real-time insights into the market, which can be invaluable and user-friendly. What’s more, you can tailor the tools you use as each trader will be different in terms of the strategies they hope to implement.
In the present era, every person strives for economic sustainability. People struggle to make ends meet financially, as jobs are paying average wages and businesses are merely covering the running costs under this economy. At a time when there are not many profitable business opportunities, the trading of cryptocurrencies has emerged as a feasible mode of financial investment. Digital currencies have taken the economic world by a storm and it has completely altered the concept of traditional currency.
The global economy has seen major fluctuations over the course of the last two decades. The financial crisis of 2008 proved to be extremely hurtful to businesses, and it was an indication that the traditional concept of currency was unable to tackle modern complications. This is when cryptocurrencies, like Bitcoin, started to make their way into the mainstream financial world.
New investors and traders are now inclined towards digital currencies like Bitcoin. There is an increasing demand for Bitcoin in the digital market. The boom in the prices of bitcoin in 2017 came as a shock to the financial world, and many of Bitcoin’s early investors were able to gain thousands and millions of dollars in profit. Since then the business world has kept a keen eye on the performances of Bitcoin in the market.
The Reason Behind Bitcoin’s Success
The traditional banking system is deemed incompetent by the public, as the general perception is that it has too many complications and complexities. Plus, there is a governing body over these banks which keep a regulatory check on every transaction made from a single account. People have to go through a lengthy process even to open an account.
Bitcoin, on the other hand, is an independent entity, and it has provided an easier alternative mode of transaction for the public. Without any external controls, transactions through Bitcoin are more safe and secure. Furthermore,Bitcoin can be traded and mined from anywhere in the world, as it unites the digital world in one forum. However, banks usually do not allow international transactions, and if they do the cost is much higher. The global economic market sees bitcoin as a more feasible and profitable mode of transaction.
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Feasibility of Trading Bitcoin Through Mobile Applications
Bitcoin is used by millions of people all over the world, and this fact has forced major brands to recognize Bitcoin as an acceptable mode of transaction as well. However, there are still many complications to this new concept which are not simple to comprehend by the general public. This is why there are platforms that guide new traders and investors in the field.
These platforms provide demo accounts to provide practical experience to the traders, and even allow their accounts to function from a minimal investment. They have no extra charges, and they provide market analysis and predictions to the users, which later helps them in gaining trade profits.
These platforms have a high success ratio, and they use modern technologies like blockchain and artificial intelligence to make predictions. Accessibility and feasibility is another benefit of trading through these platforms, because they are easy to use and can be accessed at any time to trade bitcoin on your phone. They allow manual and automated training as per the convenience of the users and give traders a chance to make their own decisions.
With the growing influence of bitcoin and other cryptocurrencies, these platforms are expected to play a vital role in training and guiding new traders. Also, these platforms have a minimal risk of loss which encourages new investors in the industry.
A number of the world’s biggest private equity firms, including Silver Lake Partners LP, Thoma Bravo LP and Blackstone Group Inc, have seen their stakes in software firms greatly devalued following a wide-reaching hack on software provider SolarWinds Corp.
SolarWinds stock has slid 20.8% from last week’s close after reporting on Sunday that suspected Russian hackers had inserted malicious code into software used by the company to carry out updates, allowing the operatives to access sensitive systems undetected.
The “Sunburst” operation, remarkable for its size and sophistication, constitutes the biggest cyberattack against the US government in more than five years. Around 300,000 companies and agencies use systems provided by SolarWinds, with around 18,000 believed to have used compromised versions of its software since the attack began in March.
SolarWinds’ customers include most US Fortune 500 companies, all of the top 10 US telecom providers, the US military and various other government branches. The UK government and the NHS are also listed among the company’s clients.
Silver Lakes holds a stake of nearly 40% in SilverWinds. Following the plunge in the value of its shares, this stake is now worth $2.3 billion, and Thoma Bravo’s 33% stake is now worth $1.9 billion.
Blackstone’s $400 million November donation in cybersecurity firm FireEye Inc also suffered from the hack, as the company’s shares fell 11% after hackers stole a collection of hacking tools used to test clients’ cyber defences. FireEye, which has contracts across the US national security sector and with its allies, uncovered the SolarWinds breach while probing this attack.
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Regulatory filings showed that, following the theft of its tools, FireEye amended its deal with Blackstone and co-investor ClearSky to make it more favourable to the private equity companies. The firm opted to convert the FireEye-preferred shares that the investors stood to receive to common stock at $17.25 rather than the initially agreed $18.
FireEye shares traded at around $13.58 on Tuesday afternoon.
Ofgem, the UK’s energy industry regulator, will allow energy networks to go ahead with a green energy investment programme into the country’s energy infrastructure worth over £40 billion, which will run from 2021 to 2026.
The programme is aimed at improving services, reducing the impact of UK energy networks on the environment, and setting a fairer price for customers.
In addition to a £30 billion initial payment to network companies running the country’s energy grid, Ofgem said it would make “unprecedented additional funding” available for green energy projects to arrive in the future, which will be aimed at reducing emissions from the energy system and eventually hitting net zero targets.
Companies have indicated that £10 billion of such projects could be in the works, though Ofgem added that there is no limit on the additional funding that it could provide, subject to good business cases being presented.
“Our £40 billion package massively boosts clean energy investment,” said Jonathan Brearley, chief executive of Ofgem. “This will ensure that our network companies can deliver on the climate change ambitions laid out by the prime minister last week, while maintaining world-leading levels of reliability.”
Brearley added that the costs incurred by the new investment “must fall fairly for consumers”, adding that the regulator would reduce the returns paid to shareholders by 40% to bring them closer to current market levels.
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Last month, Ofgem said that it is considering lifting its cap on household tariffs by £21 annually to help companies that have been struck by an increase in unpaid bills – meaning that millions of UK customers may pay more for their utility bills from April 2021 to help energy suppliers cover the cost of those unable to pay for energy due to the COVID-19 pandemic.
Stuart Lane, CEO at Trade Nation, shares his findings on the trading habits of millennial and Gen Z investors and how they have been influenced by emerging trading platforms.
There’s been a surge in trading interest among the whole population since the start of the coronavirus pandemic, but especially so in millennials and Gen Zs. A survey by E*Trade Financial Corp found that over half of younger investors have traded more frequently, and while many have made notable gains, there have also been some serious losses.
Roughly 46% of millennials and Gen Zs are trading derivatives more frequently — double the average rate. What’s more, 51% say their risk tolerance has increased. This makes for a potentially dangerous combination, especially for amateurs, of whom there are plenty. Robinhood (by far the most popular trading app of millennials and Gen Zs) has said almost half of its new customers this year are first-time traders who, therefore, may not know the risks surrounding complex derivatives such as CFDs. As Trade Nation notes: “CFD trading certainly isn’t straightforward and there’s a lot of confusing terminology and hidden costs involved too. This means it usually isn’t the best way for traders to kick off their journey.”
And in addition to the risks individual traders may be opening themselves up to, experts like Princeton economist Burton G. Malkiel believe that the outlandish trading activities of millennials and Gen Zs are also wreaking havoc on the financial markets.
Why are young people trading more?
The general consensus is that trading has been a great way for the younger generations to fill extra time and deal with the boredom of lockdown. As the founder of RagingBull, Jeff Bishop, told CNBC: “A lot of people are at home and have got more time on their hands. And many, unfortunately, have lost their jobs and are looking for new opportunities. Younger investors are looking for ways to recoup their money.” Furthermore, many Americans have been able to fund their trading activities with their government stimulus checks, with software and data aggregation company Envestnet Yodlee reporting that trading was among the most common uses for the checks in almost every income bracket.
There’s been a surge in trading interest among the whole population since the start of the coronavirus pandemic, but especially so in millennials and Gen Zs.
Apps like Robinhood, eToro and RagingBull have also made trading more accessible for these traders, seeing demand for their services rise by 300%, 220% and 158% in the first quarter of 2020, respectively. And given that the vast majority of millennials and Gen Zs have been using their smartphones more due to the coronavirus outbreak, it’s unsurprising that the time spent on apps like these has also increased.
What are millennials and Gen Zs trading?
The E*Trade survey found that almost half of young investors are trading derivatives more frequently compared to 22% of the general population, while there’s been an especially sharp increase in options trading. What’s more, the surprising nature of their most popular stock picks have stunned, and perhaps even humbled, many Wall Street investors.
"We see a lot of buying activity of specific industries that were impacted by the pandemic," said Robinhood co-founder Vladimir Tenev, as reported by CNN. He singled out shares of airlines, videoconferencing and streaming media companies, and biopharmaceuticals. For example, even though Warren Buffet dumped his airline shares in light of the coronavirus travel restrictions, millennial and Gen Z traders had faith in a recovery. Frank Holmes, CEO of US Global Investors, told CNN that he noticed a surge in interest for the JETS airline ETF in March. Examining Robinhood trends, he learned that plenty of young investors had been buying it after a major dip. The funds' assets went from $34.6 million at the start of March to $615 million by the end of April — a 1600% increase.
“Although a lot of people may say that it’s crazy, it has turned out pretty well,” JJ Kinahan, the chief market strategist at TD Ameritrade, told Bloomberg. “Retail investors for the last few months have been a little bit ahead of the curve. There’s been a lot more perhaps optimism among retail traders around the turnaround than there has been from professionals. This continues to show that.” However, it’s inconclusive whether moves like this are really paying off for younger traders. While some analysts (such as those at Goldman Sachs) claim the stocks of Robinhood investors have outperformed hedge funds and the indices, others have found a negative correlation between these stocks and their returns.
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What are the potential problems of this?
Empowered but inexperienced traders
Robinhood has been the app of choice for many millennial and Gen Z traders, and though their ambition to “democratise finance for all” has clearly appealed to this market, it also means that many amateurs have jumped into trading without any experience and gone on to make grave mistakes.
“Robinhood has gamified investing. Trading is now so simple that it can be easy to make impulsive decisions,” one millennial investor told Financial Times writer Siddarth Shrikanth, adding that they immensely regretted the progressively riskier trades they had made during lockdown. Shrinkanth noted that while Robinhood doesn’t provide investment advice, it does “little to deter poor decisions”. For example, almost 200,000 users were holding very complex United States Oil ETFs in the days after it crashed in April. “Why were younger investors drawn into volatile commodity tracker funds, despite repeated warnings from regulators that these risky products were unsuitable for retail investors?” he questioned.
Many millennials and Gen Zs are diving into trading complicated financial instruments without fully understanding the risks. And as well as the potential for devastating losses, this can also come at a tragic human cost. Alex Kearns, a 20-year-old Robinhood trader died by suicide after seeing an unexpected $730,000 negative balance on his account, which he didn’t understand and may have only been temporary.
Many millennials and Gen Zs are diving into trading complicated financial instruments without fully understanding the risks.
Volatile markets
In addition to the potential problems for individual millennial and Gen Z traders, it’s also thought that their activities may be having a significant impact on the markets. For example, having filed for bankruptcy in May, Hertz shares had surged 800% just a few weeks later, with this being one of the most popular Robinhood stocks. Stocks like these may be rallying because of the sheer number of users on the platform — there were more than 160,000 Robinhood investors who owned Hertz stock as of 17 June.
That said, not everyone believes millennial and Gen Z traders are responsible for inflated stock prices. “In June, Barclays published a study of moves in the S&P 500 and positions taken by ‘Robinhooders’,” explained The Telegraph’s Garry White. “It concluded that retail investors speculating in stocks are not responsible for the market’s rally and the top picks of the app’s users tended to underperform, and moves in the S&P 500 were independent of the positions taken on these apps.” He also concluded that while many Robinhood users may see big gains, ultimately: “this strategy needs a lot of attention to follow market moves and it seems inevitable that most will eventually lose money”.
These tips can help you get the funding you need even if your credit is not the best.
Self-Funding
The best way to fund your business is using your own money, a process known as bootstrapping. You can turn to family and friends or tap into savings. You can even borrow against a 401k to get the funding you need. In fact, more than half of all business owners say that they received financing help from friends and family.
This type of financing is not based on your credit score and, in some cases, borrowing from family may help you increase your credit score if you use the funds to catch up late payments as well as funding your business.
Venture Capital
Another method for funding your business is seeking venture capital from investors. This type of investment is normally provided with a share of ownership in the company. The investor may also want to take an active role in your business. There are differences between traditional financing and venture capital which include:
- Focuses on companies with high growth
- Investments have longer terms
- Investments are in return for equity and are not considered debt
- Higher risk for investor but potential for higher return
- Loss of some control and ownership
There are many venture capital firms who offer funding to business owners. You will need a solid business plan, and there will be a due diligence review. If the investors are interested, you will agree on terms and the funding is provided.
Normally, venture capital is provided as you meet milestones which means you may not get the full amount up front. You will have to meet certain goals included in the terms to receive percentages of the investment over time.
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Crowdfunding
Websites like Kickstarter and GoFundMe allow you to seek investments from a large number of people. The process, known as crowdfunding, lets people donate small amounts to your business to see you succeed. In some cases, you may have to give them a gift or reward as a thanks for the donation, usually a free product, acknowledgement of their contribution or other benefit.
This type of funding is best for companies that produce creative works like art or film as well as those who have created a unique product, such as a high-tech vacuum. There is very little risk to your business and, if your business fails, you are not required to repay the investors. The crowdfunding sites do take a percentage of anything you raise, however.
Traditional Financing
Loans are another popular method for funding a business. However, if there are obstacles to getting a traditional business loan, the Small Business Administration partners with banks to offer loans that are guaranteed by the organisation.
This type of loan is especially designed for those who may have difficulty obtaining a traditional loan, like those with poor credit. There are special requirements and stipulations you must meet in order to qualify, but your lender should have information about the Small Business Loans that will work for your company.
Grants and Gifts
There are many grants and gifts available to help small businesses, but it is important to be careful. Companies that offer to locate a government grant for a fee are often fraudulent and can lead to excessive costs that you will not be able to recover.
There are grants available for specific types of industries, such as technology or retail, but you will need to search in order to find one that works for you. Also keep in mind that grants are very competitive, so you may need to fill out quite a few applications before you are successful.
Gift financing may also be non-cash benefits such as free office space or free services from businesses who want you to succeed.
Further information on business loans is available if you would like to learn more about your options.
However, Pfizer wasn’t the only company to benefit from a successful trial. Shortly after the announcement, we saw a stock market boom. The Dow Jones Industrial Average in America was up by more than 1,000 points on Monday and the FTSE 100 in the UK ended the day 276 points higher, a rise of 4.67%. So, with news emerging that a working vaccine is on the horizon, what will the next six months look like for hedge fund managers and investors? Let’s take a look.
How do Hedge Fund Managers View the Pandemic?
Although news of the Pfizer vaccine is positive, it does not signal an end to the current ways of working and living. After all, this is only one trial, and even if the vaccine continues to be successful, the distribution of the vaccine will still take around a year. As a result, it’s unsurprising that many hedge fund managers still expect that the coronavirus pandemic will still negatively affect their investments. Overall, 86% believe that the pandemic will have either a ‘negative’ or ‘very negative’ impact.
That being said, the vaccine news is still a huge positive. Due to this, if the successful trials continue, the vaccine may change the outlook of hedge fund managers as long as they adapt their strategy in order to take advantage of opportunities that emerge in a post-COVID world.
What Sectors will be Popular Investment Options?
Due to the fact that the vaccine will first be given to vulnerable people over the pension age, it seems likely that the ‘new normal’ work from home dynamic will continue for at least the first half of next year. As a result, expect tech stocks to receive significant investment. The vaccine news actually caused Zoom stock to plummet by 15%, but this may be short-sighted given that the vast majority of us will still rely heavily on this form of tech in the next 6-12 months. Plus, if the virus fundamentally changes the way that we conduct business, and working from home becomes the norm in some industries, then this technology may be here to stay.
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Similarly, for many people, the coronavirus pandemic has changed our relationship with our bodies and our minds; particularly because self-isolation and lockdown have made us think more about how we look after ourselves without gym access. As a result, expect well-being providers such as Peloton to build on the 350% growth they’ve seen this year.
Finally, it’s important to remember that the Pfizer vaccine is just one of the options available, and we’re still waiting to hear trial results from other vaccine providers such as AstraZeneca, Janssen, and Valneva. Should their trials also be successful, expect their stock prices to skyrocket on the announcement.
In summary, although hedge fund managers still believe that the pandemic will have a negative impact on their funds, the Pfizer vaccine provides us with a glimmer of hope that life may return to normal by the spring. As a result, for hedge fund managers and investors, this hope presents an opportunity. By adapting their strategy to purchase stocks in areas likely to see growth such as tech and well-being, proactive hedge fund managers may be able to overcome at least some losses and could potentially come out of the pandemic unscathed.
On the heels of Election Day, capping one of the most contentious presidential election cycles in US history, markets have been roiled by the combination of an unclear victor – with millions of absentee ballots yet to be counted across several key states – and a premature claim by President Donald Trump that he had won the race.
European markets reversed their gains from Tuesday, when investors had been betting on a clean victory for Democratic presidential nominee Joe Biden. The FTSE 100 lost 1.1% as trading opened, with the CAC 40 and DAX falling 1.4% and 1.9% respectively. Yields on popular bonds also slipped as investors took refuge, with demand rising for US Treasuries and German Bunds.
Wall Street futures fell following Trump’s comments on Wednesday morning, but quickly recovered. The S&P 500 gained 0.5% while the Dow Jones lost 0.2%, and the tech-focused Nasdaq jumped by 2.5%.
“The polls are proving wrong again,” said Giles Coghlan, Chief Currency Analyst at HYCM, pointing to the near certainty of a contested election in accounting for markets’ new uneasiness. “As we are already seeing this morning, the Dow Jones and US Dollar will be in a volatile state until there is a clear outcome that both parties will accept.
“US stocks are selling off on the uncertainty, reversing the gains expected from a Biden victory as projected by the polls. This will also have significant ramifications on the performance of other major currencies and assets. So long as the uncertainty remains, I’m expecting investors to sell global equities, and their holdings in currencies like the Euro and US Dollar. At the same time, we should see inflows into the Japanese Yen.”
Giles also remarked that there are still reasons to be optimistic in the medium and long term. “Regardless of who is the next US President, the coming US stimulus bill should lift US stocks, once we have a winner confirmed,” he said. “Furthermore, over the medium term, even if gold sinks a little lower on a firmer US Dollar, the price of this safe haven asset should still rise in the coming months and into 2021. Low interest rates are projected to remain unchanged for the next three years by the Federal Reserve, and the large quantitative easing program will support the longer-term appeal of gold.”
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Nigel Green, founder and chief executive of deVere Group, urged investors to exercise caution as the results of the election are challenged in court. “This monumental uncertainty in the world’s biggest economy is going to send global stock markets into a tailspin as investors get rattled about a clear outcome taking longer to reach than they hoped,” he said.
The CEO added that renewables, industrials and cyclical stocks are likely to perform well under a Biden administration, while the oil and gas, financial and healthcare sectors will likely do better under Trump.
“History shows stocks tend to rise regardless of which party controls the White House, but it matters how your portfolio is balanced,” he said. “Therefore, investors should sit out the temporary volatility until the picture becomes clear.”
Giles Coghlan, Chief Currency Analyst at HYCM, takes a look at both candidates and the significance their victories might have for investors.
This week’s US presidential election will certainly be one for the ages. American voters will be heading to the polls today to elect Joe Biden as the 46th US President or continue with another four years of President Donald Trump. If you believe the polls, Joe Biden is edging ahead of Donald Trump. If 2016 taught us anything, however, the polls should be viewed with a grain of salt.
Investors and commentators have certainly learnt some important lessons, with many adopting a ‘wait and see’ approach. Those who hedged against a Trump victory in 2016 saw their portfolios take a big hit, though the equities rally in response to Trump’s corporate tax cuts likely helped such investors recuperate their losses over his premiership.
For now, it is important to consider what either a Trump or Biden victory could mean for the financial markets. Both candidates have touted some policies which will no doubt affect the performance of different assets. While everything is still up in the air, there are still significant observations to be made which I have detailed below.
President Joe Biden
First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious. Although not fully implementing the “Green New Deal” proposed by Democratic members of the House of Representatives, Biden has voiced his support of renewable energy and shown a willingness to gradually ween the US economy off its’ dependence on petroleum oil. At the very least, a Biden administration would be keen to re-join the Paris Climate Accords that Trump pulled the US out of in 2017.
Biden’s strong chances at securing the Presidency at present have already bolstered green energy stocks, with the First Trust Nasdaq Clean Edge Green Energy Index Fund currently trading at an all-time high. Upon a Biden victory, there could be an immediate surge in stocks related to renewable energy; including companies involved in solar, wind, and battery storage.
First and foremost, I expect that investors will flock to green energy companies listed on the Dow Jones if the Democrats emerge victorious.
Tump Back in the House
Although The Economist currently places the chances of a Trump re-election at only 5%, it’s still worth considering how the markets would react to such an eventuality.
One would anticipate an immediate short-term dollar bounce as global markets prepare for the potential heightening of the US-China trade war. As for the long term, although the Dow Jones reacted positively to Trump’s previous corporate tax cuts; more reforms would be needed to counter the negative effects of the aforementioned trade war.
There have been signs that Wall Street, no longer the political monolith it once was, has soured to Trump – indicating a lack of fear that equity markets would be negatively affected by a Biden win.
However, there is one outcome investors should be especially wary of: one in which Trump loses the electoral college but refuses to participate in a peaceful transfer of power.
A Contested Election
Trump’s consistent attempts to cast doubt on the legitimacy of this week’s election has inspired numerous American business leaders to warn the public about such a scenario, with LinkedIn co-founder Reid Hoffman recently stating: “the health of our economy and markets depends on the strength of our democracy", and that any dispute regarding the election’s outcome would "cause havoc in the business world”.
This is understandable. If 2020 has shown us anything, it’s that markets react negatively to instability and uncertainty. Uncertainty about who is the legitimate President of the United States, therefore, would imbue a fairly high amount of uncertainty into the global markets. This has essentially already been demonstrated throughout the year, with markets wavering each time Trump casts doubt concerning his eventual departure from office.
So, in summary, there are multiple ways that that different outcomes of this week’s presidential election could influence global market stability. For those nervous about their portfolios it is important not to make any rash decisions in a bid to secure short-term gains or to mitigate sudden unexpected losses.
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While the financial markets will undoubtedly react to the events listed above, investors should always take a long-term perspective. Understanding how currencies, commodities, and financial markets are likely to be affected by a changing geopolitical environment is always paramount; however, the long-term impact is always more consequential than the immediate one. Those hoping to make effective, prudent investment decisions would do well to remember this.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
Giles Coghlan, Chief Currency Analyst at HYCM, provides Finance Monthly with his insight into how the balance of markets and currencies may shift as December looms.
Brexit negotiations recently risked falling off the cliff edge as political posturing reached new heights. In the lead-up to the EU Leaders Summit on 15 October, Prime Minister Boris Johnson said the UK would stop negotiations outright if no credible progress was being made. Of course, in such a scenario, this would then open the door to a no-deal Brexit potentially unfolding.
The British pound has certainly been bearing the brunt of these Brexit worries throughout 2020, with sterling often falling to prices not consistently seen since the 1980s.
However, contrary to the forecasts of some commentators, talks have now advanced, and to put it in the words of EU officials: “intensified”. Those who believed a deal could be struck often reflected on how the initial withdrawal agreement was only agreed to mere weeks before the end of 2019, and it seems the UK government seeks to replicate such last-minute compromises as the final Brexit hurdle approaches.
So, after much grandstanding and posturing, daily talks have begun in an attempt to solidify a deal within three weeks, allowing the minimum amount of time needed to implement a post-Brexit trading relationship before 31 December.
Investors and traders must remain vigilant and aware of all the possibilities on the horizon. That’s why now is an ideal time to consider these possibilities and the impact they could have on the pound and financial markets more generally.
Investors and traders must remain vigilant and aware of all the possibilities on the horizon.
A clean break?
At the moment, it is still possible for a deal to be agreed upon by London and Brussels. Looking beyond the political rhetoric and grandstanding on display from both sides of the channel, a no-deal Brexit is not an ideal outcome for either parties. Of all the reasons, the sheer uncertainty and potential disruption that could be caused are of top concern.
So, if an agreement is made, this is expected to have an immediate impact on the value of the pound. We could see the pound instantly jump to $1.35 against the dollar, especially if the UK retains the same level of Single Market access as enjoyed previously. With goods still able to freely move between the UK and its European neighbours, a fruitful deal would dispel the long-standing uncertainty that has overshadowed UK economic forecasts since 2016. Sterling would undoubtedly benefit massively from the lifting of this worry from the minds of investors.
However, a final breakdown of negotiations and a no-deal Brexit is still something to be considered seriously. This outcome would likely incur an immediate devaluation of the pound to approximately $1.20, with the potential to fall further as the logistical issues of the UK’s new import/export reality are fully realised.
The third outcome, an extension of the withdrawal period and the continuation of negotiations, would likely provide a small boost to sterling’s value but not change the weekly volatility we’ve seen from the pound throughout 2020. Admittedly, such an outcome would require a re-ratification of the withdrawal agreement and signing off from all 27 EU state leaders who, given the ongoing COVID-19 crisis, may not be inclined to allow Brexit to distract from other pressing concerns for another year.
Regardless of if a deal is agreed upon or not, however, there will be other factors that could potentially affect sterling’s value in the foreign exchange markets. From geopolitics to COVID-19, I believe it is vital for investors to stay abreast of other unfolding trends that are affecting currency values in 2020.
We could see the pound instantly jump to $1.35 against the dollar, especially if the UK retains the same level of Single Market access as enjoyed previously.
Global factors
The recent jump in the pound’s value as a result of Brexit talks resuming in earnest was accompanied by a drop in the dollar’s value. This was seen as a consequence of stalling US Congressional talks regarding a COVID-19 relief package. Potentially more impactful for the dollar, though, is the upcoming US presidential election. Regardless of which candidate wins, a contested election – in which a candidate questions the validity of the results – could see the dollar’s value rapidly rise in risk off flows. The USD has been acting as a safe haven currency during the COVID-19 crisis and any potential of a Trump win would be seen as USD positive as US protectionist policies would look set to continue. However, the medium-term pressure on the USD favours a selling bias on record QE levels with interest rates set to remain low until 2023, according to the Federal Reserve’s latest minutes. If a Brexit deal is secured around the same time, some further GBP/USD upside could be encouraged by outflows from the USD.
Looking to the Bank of England (BoE), another potential change in sterling’s value could come as a result of negative interest rates. BoE governor Andrew Bailey has repeatedly confirmed such a policy is ‘in the BoE’s toolbox’ since August, demonstrating that this could help spur the country’s post-pandemic economic recovery. Thankfully for those unconvinced by this controversial policy, BoE deputy governor Dave Ramsden this week reassured investors that it was still not yet the ‘right time’ for such measures to be introduced.
Investors on alert
In summary, there are multiple ways the value of the sterling could be affected by geopolitical events this year. Volatility remains rife across global currency markets, and there is no indication of this volatility disappearing anytime soon.
This is especially relevant for investors, as research commissioned by HYCM earlier this year demonstrated that cash savings have become the premier asset class for those concerned about market uncertainty. Of the 900 investors surveyed, a massive 78% held cash savings, as opposed to the 48% with stocks and shares and 38% with property.
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So, for such investors with liquid-asset-heavy portfolios, keeping informed regarding the UK’s geopolitical situation is paramount for avoiding a sudden portfolio devaluation. Or, conversely, one should consider alternate safe-haven assets that also allow for hedging against uncertainty, such as gold, silver, copper or cryptocurrency, without the risk of long-term devaluation through basic monetary inflation.
Regardless of one’s specific strategy, investors and traders would do well to ensure they keep a level, informed head when approaching financial decisions in 2020. Despite any future potential uncertainty, I firmly believe there are still great investment opportunities to be found as the UK begins its transition outside of the EU. The challenge is finding them.
High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.
