Financial Markets are inherently difficult to predict, however, as start this new year, market analyst Matthew Hinman looks at some markets which he considers as good opportunities in 2020.
The year 2019 was abundant in economic and political events. For example, the trade war between the United States and China, with countless attempts to settle it through both polite and brash political rhetoric, has both fulfilled and frustrated traders and investors’ expectations. In the crypto market we have witnessed the downfall of Libra and cryptocurrency rallies which ruptured midway.
We have also witnessed a plethora of high-profile IPOs (38 Unicorns in 2019), some of which have been very successful and some that have been cancelled, such as WeWork which saw its enigmatic founder and talisman forced to step down causing its valuation to be slashed by almost 80 percent.
Given all of this, we strive to assess the attractiveness of particular markets for 2020 and highlight five which we feel show potential opportunities.
Saudi Arabia – Tadawul
Today, the most valuable listed company should be sought not on the New York Stock Exchange or NASDAQ, but the Saudi TADAWUL. December 11th saw the Saudi Aramco IPO – the world’s leading oil producer with a market capitalisation of around $1.7 trillion – overtaking Apple which closed at $1.2 Trillion the night before. While the $1.7trn was short of the Saudi’s desired target of $2trn, at the time of writing, the valuation of Aramco has reached its target due to buying activities in the secondary market.
Although only 1.5 percent of its shares are available for trading, at $25.6bn this is already enough to make it the largest IPO in history. There is a considerable probability that the price of these shares will increase significantly, as primary demand quadrupled the supply. Besides, the Saudi leadership allows the sale of shares of the company in the case the market is desirable in 2020 and beyond.
USA – NASDAQ
The NASDAQ has doubled its capitalisation between 2016 and 2019 from $7trn to over $12trn, making it second only to the New York Stock Exchange in terms of total capitalisation. However, the NASDAQ is growing at a faster pace, meaning there is a chance it could overtake the NYSE and become the world’s largest market in 2020.
One of the main reasons for growth in the NASDAQ is the fact it contains fast-growing companies such as IT giants Alphabet, Facebook, and others that have performed extremely well in 2019.
NASDAQ also looks at the cryptocurrency market with an elevated interest compared to other exchanges. It has always been ahead of the game and back in 2015 NASDAQ approved the Winklevoss brothers Bitcoin-ETF listing, although the SEC later rejected the listing and trading.
To this day the SEC is arguing that the Bitcoin market is not mature enough to support an ETF. NASDAQ publishes several cryptocurrency indices, such as the omnipotent CIX100 (from Cryptoindex, the top 100 cryptocurrencies), as well as the more specialised DeFiX (EXANTE has played a major part in the most important DeFi initiatives).
The exchange management also expresses desire to directly allow cryptocurrencies to trade, as well as to engage in crypto mining. The merger of the NASDAQ stock market with the cryptocurrency market can open up huge new prospects for investors.
China – Shanghai Stock Exchange
This leading Chinese continental exchange has shown strain due to the impact of the trade war with the US, reflecting poorly on China’s economy. In 2018 its SSE Composite index fell by 30 percent – recovering by 20 percent in the first quarter of 2019 – but then subsequently falling a further 10 percent due to the unstable course of negotiations.
This makes the Chinese market potentially very attractive for investors in 2020. When a truce between the countries will be established the index has excellent chances to grow 20 percent, back to 2017 levels and higher. At the time of writing, the US and China have entered ‘phase 1’ where China has agreed to billions of dollars in agricultural purchases and President Trump has cancelled the new round of tariffs.
This agreement is due to be signed the first week of January 2020 and we are told that the deal is “totally done” by Robert Lighthizer, the US trade representative.
Russia – Moscow Exchange
Many investors are sceptical of Russian stocks due to a deep devaluation of the Ruble in 2014, international sanctions, and promotion of domestic stocks among the population by non-market methods (restrictions on access to foreign exchanges and promotion of almost exclusively Russian assets through the banking system).
Nevertheless, in the three years from December 2016 to December 2019, in spite of low inflation, the MICEX index grew by more than 70 percent compared to the S&P 500, which only grew by 50 percent. Furthermore, in 2019 OPEC + countries agreed to further reduce production, which bodes well with rising oil prices and optimism in the Russian stock market.
Of course the success of the Russian market in 2020 is not guaranteed – for example new sanctions cannot be ruled out – however, investing part of your portfolio in Russian assets makes sense as the PE ratio stands at a very attractive 12 compared with the S&P 500 at 21.
Globally – cryptocurrency market
Almost all of 2018 saw a fall in market capitalisation, however, 2019 was more interesting with a sharp rise in the second quarter and a moderate decline in the third and fourth quarters. Institutional investors had the opportunity to buy cryptocurrencies through specialised platforms to gain exposure to this asset class.
For example, they were allowed to purchase through Bakkt or the recently licensed Fidelity. From September to November, daily Bakkt trading volumes grew by 2 orders of magnitude. New records have been set repeatedly after Bitcoin depreciation, which investors saw as a good time to enter the market.
Sooner rather than later, institutional investors will invest in the cryptocurrency market sufficiently to reverse the negative trend and create a more liquid and potentially less volatile proposition. Having bought crypto assets at current low prices, they will try to invest over the longer-term, cementing cryptocurrencies as more of an acceptable asset class within an investment portfolio.
Another important factor in favour of the new cryptocurrency rally is Bitcoin halving in 2020 due to the overall increase in the number of market participants in 2019. It is worth noting that cryptocurrencies are the world’s leading asset class for yearly performance, outperforming annualised returns of US Equities, commodities and bond markets for 2019.
The question is, how long can institutions afford to miss out?