With the summer months fast approaching, investors are already looking for new investment ideas that can maximise their returns. Below is every Brit’s guide to summer investing.
Stocks – trade them sparingly
Many investors are familiar with the phrase, “Sell in May and then walk away.” That’s because May 1 represents the end of the strongest six months of the year for stocks, according to the Halloween trading strategy. This strategy has rightly noted that stocks perform better in the winter months than in the summer. Investors abiding by this strategy enter into stocks on October 31 (Halloween) and sell six months later on May 1.
This doesn’t mean that no one trades stocks after May. You just need to be much more meticulous in your picks. The FTSE 100 Index – London’s benchmark stock gauge – has had a dismal year, but not every sector has performed badly. Beverages, chemicals, food and drug dealers, industrial engineering, industrial metals and miners are just some of the FTSE sectors that have outperformed the market average in 2016.
Precious metals – ride the safe haven rally
Gold prices have surged over 16% in 2016, as the combination of volatile stock markets and slowing global growth have boosted precious metals demand. The precious metals rally hasn’t been limited to just gold. Silver prices have outperformed the yellow metal through the first four months of the year, rising nearly 18% over that period.
The gold-silver ratio, which is used by investors to determine when to buy and sell precious metals, has plunged in recent weeks. As of April 15, the gold-silver ratio was 75.61. This essentially means it requires 75.61 ounces of silver to buy one ounce of gold bullion. The ratio was as high as 83.5 just a few months ago.
According to analysts, silver has a lot more going for it than just haven demand.
“Silver prices have benefited from the recent upswing in gold prices, but are also supported by a collapsing base metal industry, which is slashing mining and exploration projects to counteract weak Chinese demand,” wrote Sam Bourgi in a March 21 article on Economic Calendar. “About two-thirds of the world’s silver output is a by-product of base metal extraction. As producers slash output of zinc, copper and led, less of the grey precious metal is being unearthed.”
A weakening US dollar generally adds credibility to precious metals. According to the CME FedWatch Tool, which allows investors to track expectations of when the US Federal Reserve will raise interest rates, US policy will remain highly accommodative for the rest of the year. Low interest rates are often a boon to precious metals because they keep the dollar bulls at bay. Please rephrase
Sterling volatility
Pound sterling has had a rough year. At its lowest point, it was trading at more than seven-year lows against the US dollar. Much of the decline has been attributed to fears about Britain’s upcoming vote on European Union membership, which is slated for June 23. Investors may expect a great deal of volatility for the pound before and after the vote (there’s no predicting what would happen should Britain vote to leave the EU). Brexit-induced volatility might create opportunities for the GBP/USD and EUR/GBP pairs. However, multi-year lows are unlikely to be sustained in the event that Britain votes to stay in the EU.
According to a recent YouGov poll, the Remain camp holds a slim lead two months before the vote. YouGov found that 40% of Brits wanted to remain part of the EU versus 39% who wanted to leave. Sixteen percent were undecided and 5% did not intend to vote.
According to Bloomberg’s Brexit Tracker, there’s only a 22% chance that the UK leaves the 28-member EU on June 23. However, even Bloomberg realizes polls are never perfect. Polling for the 2015 UK general elections was notoriously bad, according to the British Polling Council. Most polls showed a close race between the Conservative and Labour parties in the run-up to the 2015 elections. The result? The Conservatives trounced the competition, winning their first outright majority since 1992.
Stay abreast of the market
As you’ve no doubt noticed, the outlook on the financial markets can change rather quickly. No one would have predicted last summer’s epic stock market collapse, which wiped trillions of dollars from the global exchanges. With China’s economy slowing even further in the first quarter, the country’s central bank may resort to drastic moves to curb capital flight from the country.
Aggressive monetary policy in other parts of the world is also intended to shore up investor confidence. Don’t be surprised if the Bank of Japan announces plans to ease monetary policy even further in the coming months or for the European Central Bank to defend negative interest rates.
On the whole, 2016 was forecast to be a low-yield environment. Equity markets have performed well since mid-February, but it took a massive selloff in the first six weeks of the year to create the illusion of strong performance. Make no mistake, all signs seem to indicate we are at the tail end of the bull market.
To keep up to date on the latest developments in the global financial markets, be sure to follow the financial calendar.
For more information, visit www.easymarkets.com
Nikolas Xenofontos, Director of Risk Management at EasyMarkets on 05/05/2016
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