Every year, just like 2020, poses both many risks and many opportunities for investors. The US – Iran conflict, the trade war between the US and China, Brexit, a low-interest-rate environment, the election in the US, and rapid urbanization in Asia are just a few key focal points to watch out for this year. While some of these are bound to cause volatility and bring uncertainty in the markets, there would be no opportunities for profit without any volatility, and most traders and investors are aware of that.
In this article, we are going to take a look at some of the best market opportunities in 2020. We will be discussing the top 3 investment ideas that are likely to bring significant returns in 2020 and explain the reasoning behind them. So, without further ado, let’s delve right into them.
Gold has long been known for its value. Ancient Egyptians used it in the construction of the pyramids, King Croesus (currently Turkey) used it to mint coins in 550 BC and the list goes on from here. While some argue that gold does not have any utility, people seem to value it nevertheless. Investors such as Ray Dalio argue that it should be part of an investor’s portfolio, as it is not much correlated to stocks, and will lower the overall volatility of a portfolio.
In current markets, gold serves as an investment that accommodates the flight to safety. That is the response of the markets to unforeseen market uncertainty and volatility. For example, gold rose higher after the US killed the Iranian general Qasem Soleimani by a missile strike.
Bearing in mind the current tension in the middle east and many uncertainties in the market, it is probably a good hedge against unforeseen market volatility that is going to perform well in such an environment.
Another, more fundamental reason for buying gold has to do with central bank demand for gold. Central banks kept buying gold and for the first three quarters of 2019, the amount purchased has not only been 12% higher than last year, but it has also been the highest amount of net purchases of gold in the last 10 years.
The final point is that it can be a really good hedge against a recession. During the Great Recession of 2007-2008 gold has performed extremely well. While it had different reactions to crises in the past, markets do react differently nowadays.
Since it is a speculative market, those investing for a longer-term will be more likely to reap the rewards.
Growth and Dividend Stocks
In a recent survey, Wall Street banks were asked what they predict for the stock market in 2020. Most have said that it is going to be a positive year for stocks, albeit possibly not as good as 2019 was. Still, this points to a rather bright picture for stocks, and especially so for growth and dividend stocks. As we have mentioned in our introduction, a focal point of today’s markets is a low-interest-rate environment. We have interest rates that are close to zero in many countries and they have a large impact on the valuations of stocks. It has long been known that interest rates have a significant impact on equity prices, and due to the many uncertainties facing the economy, central banks are expected to hold interest rates low this year as well.
Why is that important for stocks? Because when money is cheap, there is a lot of it looking for a place to be invested in. That goes both for companies and for investors. Companies are able to borrow more and invest in buying their own stock, which further raises their valuation. Whereas investors are looking for yield and better returns. They certainly cannot find good returns in bonds since interest rates are low. So, a good way to invest is still the stock market, and especially growth and dividend stocks. You can still find stable large-capitalization stocks paying a 5% dividend yield, which is more than what bonds in advanced economies would pay you. Additionally, low-interest rates will propel stocks such as Visa, which have a good chance of high growth this year. You can read more on growth stocks and some good picks in our previous article.
ASEAN Real Estate
ASEAN countries (Singapore, Brunei, Malaysia, Thailand, Philippines, Indonesia, Vietnam, Laos, Myanmar, Cambodia) are experiencing a boom in urbanization. Not only do they have significant spare capacity for urbanization, but its rapid pace will allow the countries to experience tremendous growth in the next few years. In ASEAN alone, about 100 million people are expected to move from the countryside to the cities between 2015 and 2030. That is a whopping 15% of the total population in the region.
What will that do? First of all, all those people will need to find a home. Real estate prices are going to soar as a result. Hence ASEAN real estate is a really attractive option for a long term investment in 2020.
Some ASEAN countries will benefit significantly from the growth in China as well. In addition, due to the trade war between China and the USA and cheap labor force, many multinational corporations are relocating to ASEAN countries such as Vietnam for their manufacturing activities. This will further increase the demand for real estate. Not only that, it will increase growth in the country, which is already experiencing a tremendous upside.
In this article, we have picked our top 3 market opportunities in 2020. Stocks are poised to perform well this year as central bankers hold rates still. Gold is a great addition to your portfolio since it doesn’t correlate with stocks. Whereas real estate prices in ASEAN countries are expected to balloon in the next few years. These are rather broad predictions and their performance will depend on many factors.
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