Tag Archives: Rate hike

We are living a market crisis, but what are the alternatives for my money?

At the very beginning of the year, an analyst already mentioned the reasons of the bear market that we are still living.

1-year evolution in the main world markets

It is not only the crash in China and the aftermaths (slow economic development, cut in commodities demand), but there are many factors to explain. Just to quote them:

  • Oil price: far from be good news, the hard drop of the oil price could really show a weak demand, not a high supply. That means that the economic development could be worse. In addition, oil companies are highly indebted. With a low price, they will suffer to pay back.
  • Rising rates in US: The increase in the rates decided by the Fed last year will not be the last one in the next months. The economic development in US has some warnings this year and the central bankers prefer to watch instead of send a negative signal. Let’s see…
  • Deutsche Bank: recently added. One of the main European and world banks reported high losses, but the worst was the suspects about its solvency. Such crisis would put the euro in a hard position to continue existing.

Deutsche Bank YTD evolution

We could mention some others, but many people ask: are we living a recession again? Some analysts are very pessimistic, others stay in a middle position. In any case, the market evolution, which is driven by irrationality sometimes, is not a good economic crisis predictor.

The question is other. In former crisis, there have always been alternatives to move the money and obtain returns. What is currently the alternative? Stocks are dropping, investors are paying interests for the safest bonds, commodities are in the lowest points for years and traditional banking products offer very poor returns. The best to do:

  • Don’t panic: ups and downs are usual in markets. Even drops are common. If you have a strategy defined by your risk profile, keep it.
  • Don’t be obsessed by news: media are continuously bombing with negative news to get attention. Switch them off!
  • Don’t sell massively: the big mistake an investor can do is selling in a market sell-off.
  • Keep a long-term perspective: common investors are not traders. They invest to make future plans. If you do not need the money now, keep calm. Let’s wait till the landscape is clearer.

Global market trends: markets in the second quarter

Trends in the second quarter of the year have been dominated by the Greek crisis. After the election of left-wing party Syriza, Greece and the UE tightened the negotiations about the payment of the debt. The result is already known: Greece defaulted the IMF. The crisis is not only for the Greeks, but also for the whole European system, as one of the partners of the Euro did not follow the established rules. What will be the next? Referendum in Greece? Grexit? New elections? The future is more open than ever. We can read several articles in the media with both positions blaming the troika and the Greek government for the current situation.

Regional global trends in T-Advisor

Generally speaking, there are some differences between the market evolution in US and Asia, on one side, and Europe and Latam, on the other side. The evolution in Europe swung depending the news around Greece, what has altered a regular trend: sudden ups and downs happened when somebody came with a new statement or rumour. Above all, investors in Greece did not experience the best results, as this T-Advisor chart shows:

5-year Greek stock exchange evolution

In Latam, the troubles in the stock exchanges are linked with the strength of the dollar. These countries are very dependant from commodities and exports are being punished by the strong greenback, that rises against all currencies as the Euro weakens and the US Federal Reserve considers hiking rates.

The more positive regions are US and Asia, but the improvement in the markets has also shadows. Asia is the region where there are more alerts. The overheated Chinese stock exchange in this year has begun to fall severely. Recent measures, as a rate cut, were not enough. Shanghai has felt a 25% since the peak on June, the 12th, and the effects are still to watch.

5-year Shanghai stock exchange evolution

Finally, US plays with strong figures and the stock exchanges are counting them. However, there are still doubts about a possible rate hike, because the Federal Reserve stated that they need more evidences about the improvement of the labour market. The next job reports in US can be decisive to preview the chances of an increase of the rates, which will can move strongly all markets (stocks, debt and currencies). Well, investor, be ready, because the road has bends.