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Finance and Banking, Investment, Investment News, News

Just 27% of UK investors have faith in Tory economic policy

A new survey of 721 UK-based retail investors has revealed their sentiments towards the Government, and how they are managing their portfolios in the current climate:

– Only 30% believe Jeremy Hunt is the right person to be Chancellor
– Even fewer (27%) have confidence in the Government’s economic policies
– 48% of investors are looking to easily tradable investments to counter economic turbulence

Only a quarter of UK retail investors have faith in Tory economic policy, with the majority concerned about slowing economic growth, new research commissioned by HYCM has found.

The online forex and CFD broker commissioned an independent survey of 721 UK-based investors, all of whom have investments in excess of £10,000, excluding the value of their savings, pensions and residential property.

It found that less than a third (30%) believe Jeremy Hunt is the right person to be chancellor.

Just 27% have confidence in the Conservative party’s economic policies, with only 22% believing the measures announced in the recent Autumn Statement will have a positive impact on their investments.

However, almost half (48%) think the Government is right to raise taxes and cut spending to tackle the budget deficit. Further, 58% said rising interest rates and inflation are their biggest concerns.

When asked about their investment activities over the past six months and their priorities when managing their portfolio, 48% said having investments they can quickly and easily trade or withdraw was important. Similar numbers (45%) are avoiding making long-term investment decisions due to continued political and economic uncertainty.

HYCM’s survey revealed that just 26% of UK retail investors are satisfied with their investment returns over the last six months. Despite market volatility, only a fifth (21%) have shifted their investment strategy to more traditionally stable assets, such as gold and bonds.

Looking ahead, 37% are more likely to diversify their investments in 2023 to ensure they can perform well in a range of potential scenarios.

Giles Coghlan, Chief Market Analyst, HYCM, said: “After a turbulent six months in UK politics, the financial markets have seen unprecedented levels of volatility. Three prime ministers, four chancellors, a disastrous mini-budget, and inflation still surging despite successive interest rate hikes – HYCM research shows UK investors are suffering a crisis of confidence in the Government.

“Interestingly, around four in five investors (79%) are not planning on decreasing their holdings in stocks and shares investments, despite the threat that raging inflation poses to their portfolios. If the UK has a deeper recession than is currently forecast, the wealth effect and the risk of a sharp capitulation in stock positions could inflict a significant amount of damage. With this in mind, at what point will those investors move away from stocks? Ironically, it could create the perfect conditions to buy when the panic selling begins.

“Although things have somewhat calmed since Hunt delivered his Autumn Statement, many investors would still benefit from exploring their options – whether this means looking to safe haven assets or diversifying their investments to boost their returns as the UK weathers a recession.”

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About HYCM

HYCM is 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 HYCM Capital Markets Group providing trading services since 1998. The Group via its relevant subsidiaries have representations in Hong Kong, United Kingdom, Dubai, and Cyprus.

High-Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% 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.

Business Research, News

Big costs and plummeting share prices ahead for companies hit hardest by social distancing

Companies hit hardest by social distancing will face high premiums and shares falling, according to new research by Christian Wagner and Josef Zechner from the Vienna University of Economics and Business (WU) and their co-author Marco Pagano from the University of Naples Federico II.

The study found that in the viewpoint of investors, companies that feel the effects of social distancing the most, are seen as less resilient in a crisis, therefore premiums rose whilst at the same time share prices fell.

This was particularly the case in companies with a strong connection to tourism, whereas, companies in the tech and communications sectors, were found to be hardly affected and will return to pre-COVID levels by early next year.

At the beginning of April 2020, the expected returns of stocks with low pandemic resilience, such as Royal Caribbean Cruises and United Airlines are 40-60 per cent lower than those stocks with high resilience, like Apple and Microsoft where the expected returns were between 3-4 per cent lower.

“Sectors like tourism, which are more strongly influenced by social distancing, lost around 10% more value in the investigation period from February 24 to March 20 2020 than companies that were affected less,” says Professor Wagner.

The authors also analysed if investors were aware of the risks of a pandemic before the current crisis, therefore in addition to the first quarter of 2020, the authors included the years 2014 to 2019 in their analysis.

“In the period between 2014 and 2019, the cumulative differences in returns between more and less pandemic-resilient companies were about the same as during the outbreak, i.e. between late February and early April 2020. We assume that investors were aware of the potential threat of pandemics long before COVID-19 broke out,” says Professor Zechner.

The researchers say that it cannot be ruled out that the most alert investors may have started taking into account such concerns in their portfolio choices well in advance of the current pandemic, shying away from the stocks of companies that would be less resilient.

The study looked at 3,600 US listed companies.

FInance, News

Four media events that rocked the financial markets

The media has incredible influence over many facets of life and the financial markets are no exception.  A famous study by Huberman and Regev showed how an article in the New York Times directly caused a 600% increase in one biotech company’s stock price, despite not actually revealing any new information.

The impact of news stories is often felt worldwide and, with this in mind, a new interactive tool has been launched to help traders get an instant picture of international repercussions.

Market Health by DailyFX, the leading portal for forex trading news, provides a snapshot of global markets and indices all in one place, allowing people to quickly assess the consequences of big events.

To launch the tool, Daily FX has analysed how four major news stories from the last decade have impacted the financial markets, to help investors better understand this complicated relationship.

Brexit rumours

Brexit sent shockwaves through the markets, with virtually every British industry from manufacturing to farming experiencing volatility. This uncertainty has seen the value of the pound fluctuate dramatically, particularly when the media speculate about the future.

In August 2019, rumours of a no-deal Brexit began to circulate in the press and sterling subsequently fell to a three-year low against the dollar.

However, in December, when news broke that the Conservatives were about to secure a large majority in government, the pound rose to a year-high. Many newspapers claimed a new period of calm, with hopes that Boris Johnson’s landslide victory would finally bring some stability to the country.

Unfortunately, the Coronavirus has meant 2020 has been anything but stable. The pandemic has completely dominated the news agenda, removing Brexit from the public eye. It’s hard to say whether its absence from the news is affecting trading, as Covid-19 is now the main influence on global markets. However, previous Brexit announcements have led to big price movements, so as soon as they inevitably make headlines again, the markets will surely respond.

Peter Hanks, Analyst at DailyFX, commented: “While Brexit headlines may not dominate the front page as they used to, it is important to consider the effect of persistent uncertainty derived from the theme.

“As the EU and UK clash, regulatory guidelines remain in flux and businesses may look to delay capital expenditures as a result. Consequently, the current Brexit proceedings may not spark dramatic price swings that dominate the tabloids as they used to, but the lingering uncertainty can certainly erode price over time. Thus, it can be argued Brexit is still a very real headwind for the British Pound and FTSE 100, perhaps just not to the degree that it has been in the past.”

US and Iran oil crisis of 2019

In the autumn of 2019, Iranian officials reported that one of their oil tankers had been hit by two rockets while in Saudi Arabian waters. The explosions damaged the vessel, causing oil to leak into the Red Sea and tensions between Iran and the USA – a strategic ally of Saudi Arabia – to escalate further.

An Iranian news agency first broke the story and then NBC broadcast it to the Western world, with allegations wildly thrown around. The National Iranian Oil Company said that the cause was under investigation, however rumours were already spreading.

With the media fanning the flames, Brent crude futures – the international benchmark for oil prices – rose by 2.4% to reach over $60.50 a barrel. Part of this increase will have been due to the impact of the attacks on oil reserves, but the media storm surrounding the event suggested that the Iran-US conflict was set to intensify. This prompted traders to jump on commodities in case the hostilities continued to send prices skywards.

Coronavirus vaccine

In 2020, the coronavirus ignited global panic as millions of people were infected, businesses closed and share prices tumbled. It was, and remains, the international health emergency of a generation and its unprecedented and universal nature means that it has wholly dominated the news agenda.

As the pandemic worsened, a worldwide search for a vaccine began and rumours of breakthroughs in the media led to movements in the stock markets. Share indexes, such as the FTSE 100, rose and fell with the emergence and then eventual discrediting of new drugs.

In April, stories began to circulate that claimed the American company Gilead had found a drug that was effective. This optimism led to surges in Asian, European and US stocks.

However, as doubts started to appear about the treatment’s reliability, the markets fell once more. The FTSE 100 dropped by 0.7% and the Stoxx 600 traded 0.3% lower.

While Gilead’s proposed remedy was ultimately unsuccessful, it does show the power of the media, as such updates directly boosted investor confidence. News of a successful medical breakthrough could well be the catalyst that sees the world’s markets start to recover.

Powerful posting

In today’s world, most breaking news stories are first revealed on social media, with information able to be shared as soon as events occur. Traders now need to monitor content on both traditional news sites and channels like Facebook and Twitter, as sometimes a single post can create waves in the financial markets.

In 2015, the billionaire activist, Carl Icahn, tweeted that he believed Apple’s stock was undervalued. This simple post caused the tech giant’s market value to rise by more than $8 billion in just one day. Conveniently for Icahn, a major Apple shareholder, his own investment in the company increased in value by $76.5 million.

With social media clearly holding great power, it’s crucial that traders are also wary of fake news stories. When somebody hacked The Associated Press’ Twitter account and posted that President Barack Obama had been injured in an explosion at the White House, the DOW Jones dropped by over 140 points. The temporary loss of market cap in the S&P 500 alone totalled a staggering $136.5 billion. The story wasn’t true, but it shows how significantly markets can fluctuate as a result of social media.

John Kicklighter, Chief Currency Strategist at DailyFX, said: “Before a day begins, traders need to check how markets around the world have performed and how they have reacted to any latest news. A single story can send ripples across the planet, so it’s important to assess it’s full impact before making any moves on the domestic stock exchange.

“The DailyFX Market Health tool has the advantage of a clear and interactive structure, giving traders exactly the benefits they need to start a day.”

To learn more about Market Health and to view the tool, visit: https://www.dailyfx.com/research/market-status

FInance, News

Stock market analysts discuss how to invest during a recession

The economic crash due to Covid-19 is a unique event, however stock market experts have taken learnings from previous recessions to predict the stocks that may increase in value during this time.

IG Markets, Europe’s largest online derivatives trading provider, has taken learnings from previous recessions, using historical data and online tools such as Decade of Trade, which visualises world stock market trends over the 10 years since the 2008 crash, to provide predictions about the areas of the stock market to watch during an inevitable recession.

Stocks to watch during a recession

Under expansionary circumstances, stocks that have strong growth prospects such as healthcare and consumer staple sectors, for the future typically command lofty valuations and produce high returns, as investors bank on the company’s ability to generate more income as time progresses. This phenomenon typically results in high price to earnings (P/E) ratios like those currently present in some of the market-leading tech stocks.

In the event of an economic downturn, however, these profit-hopeful stocks are often discarded as investors align their income assumptions with slowing growth and lower consumer spending.

On the other hand, stocks with stable – but often more modest – income generation tend to be more insulated from dramatic stock shocks that frequently accompany recessionary periods. These stocks are known as “defensives” and, broadly speaking, include the utility, healthcare and consumer staple sectors. Given their profitability profiles, they become an important collection of stocks to keep an eye on when the broader market encounters a rough patch.

Consequently, a portfolio comprised entirely of equities is remarkably vulnerable in times of recession, particularly at the onset when losses are often steepest. With that in mind, it may prove beneficial to look outside of the equity market for some of the best recession-proof investments.

Gold can be an investment during a recession

XAU/USD is widely regarded as a safe haven asset for its stable store of value and tangibility. Further still, gold can act as an inflationary hedge, making it an attractive investment in times of recession and in periods of lower interest rates when inflation may threaten to take hold. Gold has demonstrated an almost innate ability to retain its value during contractionary periods, thus making it an attractive investment in times of uncertainty.

The US dollar: an attractive currency during recessions

Sharing similarities with gold, the US Dollar also boasts safe haven attributes. Due to its role as the world’s reserve currency and the backing of the world’s largest economy, the US Dollar is both incredibly liquid and sought after. Issued by the Federal Reserve, the Greenback is arguably the safest currency in the world and has become a quasi-currency of exchange in many nations where domestic currencies have had their purchasing power fall, due to inflationary pressures or other economic woes.

Consequently, holding US Dollars during periods of uncertainty or turmoil is often viewed as an attractive alternative to other assets. Evidenced in the Great Financial Crisis when the United States dragged the rest of the world into a global recession, the US Dollar surged almost 25% during 2007 to 2009 even as the Federal Reserve lowered interest rates to the floor.

The Dollar’s strength was largely owed to the fact that the Federal Reserve possessed ample liquidity and the US economy was soon in a position to recover while others were mired in recessions – some of which have never fully recovered.

Joshua Warner, Anaylst at IG Markets, said: “While there is a strong argument that a global health pandemic like Covid-19 has been on the radar of governments and institutions for decades, the lack of preparedness of most governments and businesses shows how unprecedented the current situation is.

“It is almost guaranteed that the UK will enter a recession in the coming months. The Bank of England (BoE) has said it is likely to be the sharpest one on record, while Chancellor Rishi Sunak has warned it will be a ‘severe recession the likes of which we haven’t seen before’.”

Peter Hanks, Junior Analyst at Daily FX.com, said: “With the benefit of hindsight and the lessons of the three most recent recessions, it can be argued the best recession investments are not stocks at all, but rather assets that retain their value even as growth slips. Therefore, if equity exposure is a must-have in your portfolio, the US Dollar and gold should also be given consideration – particularly for the risk-averse investor or one who suspects an impending recession.”

To learn more about the stock market over the last 10 years to understand future trends, please visit: https://www.ig.com/uk/special-reports/decade-of-trade