The large tech companies have seen their share prices go up rapidly over the last weeks and months. They have a large weigthing in the S&P, which made the Index very strong over the last periods. In Europe we are less heavy in tech and that is one of the reasons the European stock exchanges are underperforming the S&P over the last weeks. Next to that, the EUR/USD has been very strong which is beneficial for US companies as they can export their products against interesting currency exchange rates and they do pay their costs mostly in USD. The USD has weakened considerably over the last weeks. Investors currently do not see the USD as that much of a safe haven. There is US election risk and the corona virus is far from under control.
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Better safe havens?
Are there better safe havens out there? Investors do think so as they are aiming for Gold and the Bitcoin. Gold has seen quite a strong rally over the last weeks. What is the message behind the rally in gold? In the beginning of the Covid-19 crisis, gold was not that popular and was even in a freefall like all assets. Investors were liquiditating higher margin assets to get cash in. Bitcoin was liquiditated and even gold. Currently investors are pricing in higher chances than before for a so called ‘stagflation’. A rare combination of slow growth and rising inflation. This would very negatively impact the value of fixed-income investments. Stagflation could take hold across parts of the world. Central banks keep on printing money and have set interest rates to record low levels. Some investors belief this in time is going to turn into spending and a period of much higher inflation. As gold is one of the best protections against inflation, investors are fleeing to this metal. I think it is speculative to invest large amounts in gold, as I do think that high levels of inflation are unlikely to come back anytime soon. Life-expecatancy of people becomes higher. Older people do have to rely more and more on a smaller amount of retirement funds for a longer period. They need to start saving at a younger age and they need to save more. They will avoid spending which will leave the inflation rates at a lower level. Next to that, globalization will go on. Large companies like Amazon are able to get you products against lower and lower prices. Further technological developments also will help lowering the costs of products. Less people are needed to do the job and products are being made at a lower cost and more efficient. But, at the moment, gold is a trending topic.
The bitcoin has seen a strong rally as well over the last months. Bitcoin lately broke the $10.000 again and that triggered traders to buy and quite some do expect a rally to levels higher than at the end of 2017. Fundamentally it is difficult to explain why the bitcoin is moving up again. There are a lot of speculative traders in this product and also a lot of gamblers. Or people who only watch the graphs and based on those buy into the rally.
Stocks that still need to recover
Some stocks, especially tech stocks, have shown very large recoveries and some are also on the all-time-high. A non-tech stock that has recovered heavily during the last months is PostNL. PostNL reached a low below €1.00 in March and that was a huge overreaction. PostNL would actually benefit from the Covid-19 crisis as it is focused mainly on distributing packages to consumers who order online. Ordering online became even more popular during the crisis as people did rather not leave the house and quite some places were shut down or had restrictions. Next to that, the accelerated transition to online buying will most likely not revert back in the future. PostNL is able to achieve high margins in their parcel business and is doing extremely well at the moment. In the stock newsletter it was advised to buy below €1.00. Currently the price is €2.40. PostNL moved up over 140% in just a couple of months. There was not too much risk in the investment as fundamentally PostNL was doing very well and at some point this would come back in the stock price. There were no liquidity problems and the business & longer term stock price were very safe to take a position in. There are more companies like PostNL. Companies that are actually doing very well but are being underpriced. And companies that do have problems during the crisis, but will get out much stronger. If you want to know more about these opportunities, check it out below!