Mercedes Pantazi, Customer Support Manager, easyMarkets
The holiday season is upon us! Whether the financial markets have been naughty or nice to you this year, we’ve decided to make a list (and check it twice) of instruments that traders probably want to see under the Christmas tree.
Who can say no to this good ol’ shiny metal? Apart from the razzle dazzle and its intrinsic value, gold is typically treated as the safe-haven bet in times of uncertainty and market turmoil. And given how the major market themes have played out so far this year, it might not hurt to have this precious metal in your portfolio.
Indeed, this year was marked by a couple of surprise outcomes in the global economy, specifically the EU referendum and the US elections. The former resulted to a vote by the United Kingdom to leave the union, followed by former Prime Minister David Cameron’s decision to step down, leaving the British economy in an unprecedented position. New Prime Minister Theresa May and BOE Governor Mark Carney have acknowledged that Brexit could bring a lot of pain to the UK, and the British High Court ruling to require parliamentary approval before invoking Article 50 could keep the economy in limbo for much longer.
Meanwhile, the latter yielded a victory for Republican nominee Donald Trump whose brash rhetoric and shifting stances on foreign policy could undo the progress in the US economy. US markets have already been on the decline leading up to the elections, and the outcome isn’t likely to provide one bit of comfort to rattled investors. Futures have slumped more than 5% when election results started coming in, and this might merely be the tip of the iceberg for a more prolonged drop.
It is in these market situations that gold and other precious metals enjoy strong rallies. And it’s not just the short-term market jitters that could keep gold afloat, as longer-term issues pertaining to Brexit and the Trump presidency could prevent traders from taking on riskier positions.
Medical marijuana stocks
On a “higher” note, the medical marijuana industry got a strong boost after the US elections, as these also included votes to legalize medical or recreational use of cannabis in nine states. California, Nevada, and Massachusetts legalized marijuana while Florida, Arkansas, Montana, and North Dakota also approved cannabis for medical use.
This would likely yield double to triple-digit gains for shares of medical marijuana companies who have been positioning themselves leading up to this game-changing vote. Not only does this cover firms that specialize in producing medical or recreational marijuana products, but also those that develop growing kits, provide consultation for cannabis companies, produce THB and CBD-infused food products and beverages, etc.
The market for recreational and medical marijuana is expected to grow to $22 billion by 2020, a considerable increase from its current $7 billion market. California is the largest state economy so the yes vote is expected to triple the size of the cannabis market.
In keeping with the theme of safe-haven flight, the lower-yielding Japanese yen has been enjoying the bulk of the gains recently, as traders dumped their dollar holdings in the aftermath of the US elections. This could also dampen the odds of a Fed interest rate hike in December since the central bank would be keen to keep the economy afloat and refrain from withdrawing stimulus for the time being.
With that, forex traders might have less reason to hold on to the US dollar on these declining rate hike expectations. Even though the US currency typically serves as a safe-haven itself, the expected bloodbath in US markets could weigh on demand for the dollar in the near-term. Besides, Trump’s changing economic views could keep uncertainty in play for US markets, forcing traders to seek returns elsewhere.
Now the Japanese central bank has been stubbornly refusing to boost its stimulus program so far, asserting that they will simply tweak their monetary policy framework instead of setting hard targets for inflation. This may keep the Japanese currency appealing to traders while the risk-off environment persists, especially since its other safe-haven counterpart, the Swiss franc, is always under threat of currency intervention by the Swiss National Bank.
The cryptocurrency has also been on the up since the middle of the year and could be poised for more gains in the coming months. Traders who have been able to maintain a healthy appetite for risk have flocked to this alternative investment, especially since stocks and commodities haven’t offered such stellar returns recently.
One of the biggest factors that contributed to the bitcoin price rally was the influx of funds from Chinese investors who are seeking to hedge their yuan-denominated holdings. While these folks are trying to make money on their local stock market investments, the value of their domestic currency has been kept down by monetary authorities in order for China to retain its advantage in international trade.
China is the world’s second largest economy so investors from this part of the world make up a chunk of the bitcoin market. To add to this, positive developments in the bitcoin industry itself has also propped up the cryptocurrency by a considerable amount since its lows back in August. At this rate, bitcoin looks set to revisit its yearly highs and possibly even climb all the way up to $800 next year.
Global markets seem to be looking at a lot of potential uncertainty in the coming months. Still, investors might be keen on profiting from further declines and put options might be one way to go. These financial instruments give the holders the right, but not the obligation, to sell the underlying asset at a specified price before its pre-determined expiration date, which could provide downside protection in the event that a sharp drop occurs. The put/call ratio, which basically reflects whether markets are gearing up for some downside or upside, reached its highest level since mid-June for all index and equity options traded on the CBOE so this indicates that traders are trying to position ahead of a market tumble. Do keep aware, that Put options do carry risks of unlimited loss.