The situation in global financial markets remains tense. Primarily, this is due to the unstable political climate. A trade war is escalating between the US and China, while the UK has yet to realize Brexit, which could lead to its fragmentation, among other issues.
Concurrently, the global economy is showing very slow and insignificant growth, particularly in the manufacturing sector.
However, there is no need for despair. Experts are convinced that the economy could show growth in the second half of the current year. This is linked to an increase in China's GDP, which, in turn, could lead to positive shifts within the Eurozone.
Changes should affect the investment sector. What should entrepreneurs expect? And what risks will they have to face?
To delve into this, the founder of "Oil Resource Group," Sergey Tereshkin, has taken the initiative. The businessman has been an investor for a significant time and independently invests in various instruments. This has given him vast experience. More information about his professional activities can be found on the entrepreneur's website: www.sergeytereshkin.ru.
Expectations and Reality
A few years ago, after the presidential elections in France, many experienced market players anticipated that the country's central bank would seize the opportunity to raise loan costs and prevent the consequences of negative rates. However, the central bank missed the moment or altogether ignored it. The leadership preferred to keep the interest rate at the previous level.
Instead of stability, the economies of European states had to face a worsening situation. This impacted not only France but also Germany. As a result, the forecast was significantly downgraded. In the coming years, the situation is expected to deteriorate further, increasing the risk of a new wave of crisis.
The European market is connected with the Chinese market. Therefore, the situation is not as bleak as it may seem at first glance. New emission standards for vehicle production are expected to accelerate manufacturing and improve the economic situation in Europe.
Currently, European countries are mirroring the Japanese experience, which is difficult to label as positive. The velocity of financial resources is decreasing, while interest rates remain low. If European governments do not implement any measures or infrastructure projects, any talk of economic recovery is futile.
Sergey Tereshkin anticipates an improvement in the European markets in the coming months. However, the central banks' intention to maintain interest rates at previous levels poses a risk of a negative scenario, similar to what Japan faced.
Despite this, European assets could yield a decent return, particularly for corporations based on the continent. In the case of unpopular sectors, the risk of stock price declines is very low.
Alternative Markets
A promising alternative to European markets is the Asian markets. This includes not only China but also India, Thailand, Indonesia, the Philippines, etc. Manufacturing is actively developing in these countries, driven by low labor costs. This makes Asia attractive for numerous corporations that are eager to relocate their production to these states.
At the same time, the Chinese government has decided to reduce the Value Added Tax rate. Additionally, legislative bodies intend to revise their budget policy. Currently, these are priority tasks set by the government.
Such an approach has positively impacted the markets. Furthermore, GDP growth is expected to be influenced by dialogue between China and the USA. Entrepreneurs have already factored this data into the value of securities. Any changes in the market will immediately affect it. If the implementation of programs for improving foreign policy is prolonged, the market will likely react with a decline.
Should Investors Look to America?
For many investors, the American market has been and remains quite attractive. Despite the decline in business activity, the US economy demonstrates resilience. However, experts believe that it is operating at its limits.
Currently, there is a complete absence of an inversion of the yield curve. This means that a recession cannot be discussed; it is unlikely in the near future, at least for the next few years. Even aggressive policies by Trump cannot disrupt this trend. The government is actively smoothing out tensions and taking the right measures.
Even the low yield on bonds, which has remained positive for an extended period, may still attract investors.
Since the beginning of the current year, the stock market has shown progress. Prices have almost fully recovered the positions lost in the final months of 2018. This is attributable to changes in the rhetoric of the leadership of the Federal Reserve System of America.
Therefore, a considerable portion of portfolios has managed to cover a significant part of last year's losses, with some even surpassing their previous positions.
Experts anticipated this development. However, it came sooner than expected. According to forecasts, the situation was not expected to improve until 2021. Such an early resurgence signals a recovery in the economy.
If this trend continues on the stock markets, a noticeable increase in stock prices is likely to be observed. Concurrently, investor returns will also increase.
While the stock market appears relatively optimistic, the situation with bonds is different.
The policies of many major banks around the world are reducing the attractiveness of bonds linked to inflation levels. As a result, experienced market players are entirely excluding them from their portfolios, preferring to use alternative instruments for risk diversification.
