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Market Snapshot: Most Assets Hurting, but One Stock Market Bucked the Trend

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Market Snapshot: Most Assets Hurting, but One Stock Market Bucked the Trend

Market Snapshot: September 2015

Deutsche Bank recently provided a graphical snapshot that covers the returns of a wide span of assets both YTD and since the mid-August meltdown. In addition, they added some market commentary on the situation investors find themselves in as they get back in gear for the autumn.

First, let’s recap the spring and summer. Chinese markets started the year with gusto, but lost all of the gains during the summer as the bubble burst. Equity markets in the U.S. soon followed, with the Dow shedding almost 2,000 points in August before beginning a small bounce back. Commodities have all been crushed thoroughly YTD and especially in the last two weeks of August.

Despite all of this, there is one stock market that has bucked these trends with outperformance.

That market belongs to Russia, where equities are up 26% on the year and have remained relatively flat since all other markets melted down in mid-August. Russian stocks are not rising because the country’s economy is healthy – they are up because it is less worse than investors thought.

The quick story on Russia: the country is in its worst recession since the Financial Crisis, and had its GDP shrink -4.6% up to Q2 of this year. The ruble has depreciated against the U.S. dollar by 16% YTD, and it also lost plenty of purchasing power last year as oil prices got hammered.

Many spectators had expected the re-emergence of a currency crisis similar to 1998. Adding in possible geopolitical tail risks, publications started to recommend ways to play the Russian crash. Instead, it seems so far that Russia has been able to stabilize better than expected, and as a result stocks have rewarded investors that weren’t so pessimistic.

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Bitcoin

How Decentralized Finance Could Make Investing More Accessible

Under the current global financial system, billions of people do not have access to quality assets. Here’s how decentralized finance is changing that.

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Infographic: How Decentralized Finance Could Make Investing More Accessible

Did you know that a majority of the global population doesn’t have access to quality financial assets?

In advanced economies, we are lucky to have simple options to grow and protect our wealth. Banks are all over the place, markets are robust, and we can invest our money into assets like stocks or bonds at the drop of a hat.

In the United States, roughly 52% of people are invested in the stock market – but in a place like India, for example, this portion drops to a paltry 2%. How can we make it possible for people on the “outside” of the financial system to gain access?

Breaking Down Barriers

Today’s infographic comes to us from Abra, and it shows how decentralized finance could make investing a more universal phenomenon, especially for those that don’t have access to the modern financial system.

It lays out four key obstacles that prevent people in developing markets from investing in quality financial assets in the first place:

  1. The Geographic Lottery
    Where you live plays a massive role in determining your ability to build wealth. In advanced Western economies, the average person is much more likely to be invested in financial markets that can help compound wealth.
  2. Financial Literacy and Complexity
    Roughly 3.5 billion adults globally lack an understanding of basic financial concepts, which creates an impenetrable barrier to investing.
  3. Local Market Turmoil
    Even if a person is mentally prepared to invest, local market turmoil (hyperinflation, political crises, closed borders, etc.) can make it difficult to get access to stable assets.
  4. The Cost of Investing in Foreign Markets
    Foreign assets can be pricey. One share of Amazon is $1,800, which is realistically more money than many people around the world can afford.

In other words, there are billions of people globally that can’t take advantage of some of the most effective wealth-building tactics.

This is just one flaw in the current financial system, a paradigm that has created massive amounts of wealth but only for a specific and well-connected group of people.

Enter Decentralized Finance

Could decentralized finance be the alternative to open up access to financial markets?

By combining apps with blockchain technology – specifically through public blockchains such as Bitcoin or Ethereum – decentralized finance makes it possible to get around some of the barriers that are created by more traditional systems.

Here are some of the innovations that are making this possible:

Smart contracts could automate transactions and remove intermediaries, making investing cheaper, faster, and more accessible.

Fractional investing could allow partial or shared ownership of financial assets by using tokenization. This would make expensive stocks like Amazon ($1,800 per share) available to a much wider segment of the population.

Location independent investing is possible through smartphones. This would make it possible for people in remote parts of the developing world to invest, even without access to nearby financial institutions or local markets.

Like the internet with knowledge, decentralized finance could reshape the world by making financial access universal. Who’s ready?

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Economy

How Macro Trends Shape the Market’s Future

From climate change to aging populations, macro trends are changing the future. Here’s how to use them to your advantage.

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It’s hard to say for certain what the future holds.

Without the luxury of a crystal ball, investors must find opportunities by analyzing the market. There’s just one problem: the 24/7 news cycle is enough to make anyone’s head spin.

Where should an investor focus their attention, when almost every new venture is forecast to be the next big thing?

The Powerful Influence of Macro Trends

Today’s infographic comes to us from U.S. Global Investors, and it highlights how analyzing macro trends can serve as a key investment tool.

U.S. Global Macro Trends

Two Main Investment Approaches

When selecting stocks, many investors fall into one of two camps:

1. Top-down Investing

  1. Analyze macroeconomic trends.
  2. Identify specific sectors and regions.
  3. Choose individual stocks based on company fundamentals.

Considering the aging Chinese population, a top-down investor may choose to invest in Chinese healthcare stocks.

2. Bottom-up Investing

  1. Complete in-depth company analyses.
  2. Select a stock that is outperforming others in its sector.

A bottom-up investor could analyze Home Depot and choose to invest if it had strong performance relative to Lowe’s.

These approaches can be used separately, or even combined together. Zooming out allows investors to identify the big picture opportunities. Then, a bottom-up approach can find the companies that best capitalize on each trend.

What is a Macro Trend?

A macro trend is a long-term directional shift that affects a large population, often on a global scale. For example, climate change is affecting industries in both positive and negative ways. While “green” industries have seen increased support, ski resorts are projected to have 50% shorter winter seasons by 2050.

There are a couple of main ways to identify macro trends:

  1. Government policy
    Government policies are a precursor to change, shaping macro trends and creating opportunities. For instance, Obama’s Recovery Act fueled growth in renewable energy with a $90 billion investment.
  2. Economic cycles
    The cyclical nature of the economy means that investors can also use history to identify macro trends. Consider fiscal and monetary policy, which is implemented in response to economic data:

    • Expanding economy
      The central bank raises rates and the government reduces fiscal stimulus. As a result, inflation is moderated.
      • Contracting economy
        The central bank lowers rates and the government increases fiscal stimulus. As a result, growth is stimulated.

Discovering Long-Term Value

Macro trends are a key tool for discovering long-term market opportunities. They are beneficial because they are:

  • Unbiased and data-driven
  • Not swayed by daily headlines
  • Tend to avoid riskier, niche industries
  • Can be diversified by sectors and regions

There are currently many macro trends at play. For example, Trump’s sweeping tax reform and deregulation boosted the U.S. economy, lifting GDP growth to a 13-year high of over 3% in 2018 Q3.

However, not everyone’s a winner. America’s reduced taxes have made Canada less competitive. It’s estimated that 4.9% of Canada’s GDP is at risk due to ripple effects from U.S. tax reform. What’s more, regulators worry that the bank deregulations might put the financial system at risk.

The proposals under consideration… weaken the buffers that are core to the resilience of our system.

— Lael Brainard, Member of the Board of Governors of the Federal Reserve

So, how do investors distill this wealth of information into a future of wealth?

Spotting the Next Wave

In today’s hyper-connected world, it’s easy to get lost in data overload. Thinking big picture allows investors to focus on trends that:

  • Have a long-term outlook
  • Affect a large population
  • Create a clearer vision of the future

Then, an investor can target the most promising regions and sectors. When used effectively, this approach enables investors to ride the next big wave that will shape markets.

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