Gold
As kids, we buried “secret treasure” in the backyard. We didn’t know then, let alone care, about the state of the economy or the worth of gold.
These days, we know very well what’s in our investment portfolios and we cringe or breath a sigh of relief as we watch it fluctuate from day-to-day and week to week. So, it’s no surprise these days of economic uncertainty, we might find ourselves dreaming of safely buried treasure once again.
If you are, you aren’t alone.
According to a survey by Magnify Money published in July 2020, one in six Americans bought gold or other precious metals in the last three months, and about one in four were seriously considering investing in them. After all, gold tends to hold its value, in part because it has a finite supply. In fact, “gold was one of the highest-performing investments in 2019,” according to a recent article in Forbes.
Interestingly, the COVID-19 pandemic has resulted in a less fluid supply of gold in the marketplace. Around the world, the pandemic has forced mine closures and slowdowns. According to an analyst from CRU Group, in April about 10-15% of gold mines globally were offline, including in South Africa, Peru, Mexico, and Canada.
So, is gold still a good investment? And if so, what’s the best approach? Not surprisingly, there are lots of gold investment options in the modern world, and the most practical ones don’t involve buying and burying it in the backyard.
Why Invest in Gold?
Gold is understood as a “stable store of value.” Although typically gold doesn’t offer a big return on investment, it tends to hold its value during uncertain times. As a result, gold tends to hold its value during times of financial volatility.
In today’s volatile market, that makes it particularly attractive.
The value of gold is influenced by inflation and supply. The dollar value of gold moves opposite of the dollar. This is because as the dollar gains, it requires fewer dollars to purchase the same ounce of gold.
How to invest in gold
There are many ways to invest in gold, including:
Physical Gold: Gold bullion is physical gold in the form of coins or bars. Typically, these are sold at a markup by the seller and come in sizes ranging from one gram (approximately 1/31 of an ounce) to 400 ounces. Bullion coins are typically recognizable based on imprints such as the American Eagle, Canadian Maple Leaf, and South African Krugerrand.
Typically, the value of non-bullion coins is based on their rarity, not the amount of gold in them. This is because in 1933, President Franklin D. Roosevelt signed Executive Order 6102, which required Americans to surrender much of their gold to the government for compensation. The collected gold was melted into bar form, making the remaining coins from that era particularly valuable.
Physical gold tends to be liquid for those needing cash, but often must be sold at a discount. Also, it can be difficult to store it safely. But again, while buying actual treasure is appealing and very possible, isn’t the only way to invest in gold.
Gold Exchange-Traded Notes (ETNs) and ETFs: ETNs are “debt instruments tied to an underlying investment” such as a commodity like gold. Gold ETNs enable investors to invest in gold without having to purchase it in physical form, which is much easier for many investors. Gold-backed ETFs are another option. First launched in 2003, these ETFs are securities designed to track the gold price.
Gold Mining Stocks: These are simply investments in companies that mine for gold. While these are not direct investments in gold, they are an investment in the industry.
In times of volatility, gold can be a popular hedge for investors looking to protect their portfolios from wild swings. For those investors interested in gold-backed ETFs and mutual funds, a search on Magnifi suggests that there are a number of available options.
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Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 20, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
FINSUM + Magnifi: The Biggest Market Impact of COVID is Just Beginning
(September 2020)
While the pandemic has hit the economy and markets hard, the real long-term effect that the recession could have on the economy likely hasn’t even started yet. What is that effect you might ask? Deflation. When the pandemic first hit there were worries about inflation because of price spikes in certain consumer goods. However, over time those have proven to be transitory, and instead, what is taking hold is the realization that average costs are falling in many parts of the economy, such as rent, medical care, and college tuition. For example, if you strip out housing and used car prices, the latter of which has surged during the pandemic, consumer prices as a whole fell in September.
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FINSUM + Magnifi: Funds That Enable You To Invest in Diversity
(September 2020)
At its heart, ESG investing is about risk mitigation. While morality is at the heart of the endeavor, ESG is an attractive investment for some people because it may screen out some risks while earning good returns. While climate change gets the bulk of attention within ESG, diversity is an increasingly important component in 2020. So how can investors specifically invest in companies who are making advances in the area of diversity? Here are three ETFs to consider. The first is the SPDR SSGA Gender Diversity ETF (ticker: SHE); secondly is the Pax Ellevate Global Women’s Leadership Fund (PXWEX). Both funds focus on companies with gender-diverse leadership teams and policies that support the empowerment of women in the workplace. Another fund, focused on racial diversity is the Impact Shares NAACP Minority Empowerment ETF (NACP), which invests in companies that are taking real action to fight for racial justice.
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FINSUM + Magnifi: This Major Bank Just Warned Investors to Dump Big Tech Stocks
(September 2020)
With the decline in big tech stocks a month ago and increasing breadth across indexes in the last couple of weeks, there has been increasing concern about the risks associated with tech megacaps. Worries about holding FAAMG have lost some of their potency with investors. That is a mistake, according to Societe Generale, who has just warned investors it is time to cash in their chips on those stocks. SocGen reminds investors that by the end of August, technology comprised 64% of the S&P 500, close to the 70% reached in the early 2000s tech bubble. They argue that with the economy healing and potential increases for regulation in the sector, it is time to look elsewhere.
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Emerging Markets
With growing, increasingly affluent populations and innovative technologies, emerging markets offer opportunity for diversification, exposure to various stages of the economic cycle, and attractive valuations.
The top five emerging market economies— Brazil, Russia, India, China and South Africa—are commonly referred to as the BRICS. Formalized in 2010 when these companies represented just 11% of global GDP, these countries have experienced tremendous growth since then, a trend that is expected to continue for the foreseeable future. The International Monetary Fund anticipates that by 2030, the BRICS nations will make up over 50% of global GDP.
While the BRICS countries are enormously different in terms of economies, structures, and cultures, they all have large populations and promising futures. China and India, for example, have become major players in the technology sector. Brazil is the second largest food producer in the world, second only to the U.S. Russia and South Africa are home to rich natural resources. All are home to potential supply chains and new consumer markets.
Here’s what you should know about the world’s top emerging markets and how to invest in them.
What Are the BRICS?
As mentioned, the BRICS countries include Brazil, Russia, India, China and South Africa.
Brazil has a GDP of $1.868 trillion, making it the eighth-largest economy in the world. The country is also a member of Mercosur, a South American free trade area that includes Argentina, Brazil, Paraguay and Uruguay, which is home to three quarters of the total economic activity on the continent. Mercosur has an annual GDP of about US$5 trillion and is home to more than 250 million people.
Russia is rich in natural resources, has strong emerging industries, and a growing middle class. Russian GDP has experienced steady growth since 1998. In 2018, it increased by 1.8%, thanks to solid international growth and rising oil prices. As of 2019, its GDP is $1.64 trillion.
Russia is the dominant partner in the Eurasian Economic Union (EAEU), which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. These countries together boast a GDP of $5 trillion and are home to a population of 183 million. There are talks about free trade agreements with other areas, and when reached, it will no doubt change the supply chain.
India’s GDP in 2019 was $3 trillion. Whereas politics play a role in the uncertainty of investing in some emerging economies, that’s not the case for India. Since gaining its political freedom from Britain in 1946, India established and has since successfully maintained strong parliamentary democracy. The country is the dominant partner in the South East Asian Free Trade Area (SAFTA), which includes Afghanistan, Bangladesh, Bhutan, India, The Maldives, Nepal, Pakistan, and Sri Lanka. The populations in these countries amount to a market of 1.6 billion people.
China has a particularly strong manufacturing sector, and not just for “Made in China” products exported around the world. According to the National Bureau of Statistics, three fourths of China’s 6.6% GDP growth in 2018 was credited to consumption. And, its growing consumer base, with its growing wealth, wants quality.
According to Forbes: “South Africa ranks high worldwide for investor protection and the extent of disclosure.” That fact has not been lost on foreign investors, with FDI into South Africa growing by 446% to 7.1 billion in 2018. China and Russia have both invested heavily in Africa.
In addition to being home to the most developed stock market in Africa, South Africa boasts natural resources including gold, iron, ore, coal, platinum, uranium, chromium, and manganese nickel.
Why Invest in Emerging Markets?
Emerging markets tend to carry a varying amount of political and economic risk, depending on the country. But, on the whole, the sector has lately outperformed more established markets in Europe and North America.
COVID-19 has made this divergence even clearer, with the asset class coming nearly all the way back to pre-pandemic levels as of October 2020. This performance was in part in lockstep with the rest of the world, but since emerging markets stocks tend to fall further in bad times, they have come roaring back even stronger than their first world peers.
Per Lazard: “Following a drawdown of nearly 35% in the first quarter and a sharp 18% recovery in the second quarter, the MSCI Emerging Markets Index rose 9.6% in the third quarter to climb nearly all the way back (96%) to its pre-COVID-19 peak.”
But, as such a large sector that’s spread across so many different countries, investing in the growth of emerging markets can’t be focused on just a few companies. Fortunately, a number of ETFs and mutual funds allow investors to access all of the asset class at one time. A search on Magnifi suggests a number of options for investors interested in the emerging markets.
Unlock a World of Investing
with a Magnifi Account
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 13, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
FINSUM + Magnifi: Why Gold is a Good Bet Right Now
(October 2020)
Gold is looking like a good bet right now. The metal has had a very strong year after almost a decade of lagging, and it is no surprise—global calamities are the perfect environment for gold appreciation. But we are clearly past the initial panic of the pandemic, so what is the current case for the shiny metal? The answer is that the roadmap looks very positive. Two tailwinds appear to be in place, one in the short-term, the other in the medium- to long-term. Firstly, the election is likely to cause a great deal of uncertainty and volatility which gold will probably benefit from. Secondly, as a new stimulus package draws nearer, the credit quality of US Treasuries is causing some anxiety. Gold has been rising alongside this fear, with a 1.8% gain yesterday as investors increasingly believed a stimulus package would be passed.
FINSUM + Magnifi: Morgan Stanley Says Now is the Time to Go All-in on Stocks
(October 2020)
In an unusually bullish opinion, one of Morgan Stanley’s best-known and most bearish strategists—Andrew Sheets—has just released a very bullish outlook. The bank’s chief cross-asset strategist is telling investors to dump their defensive positioning in large tech and long-dated Treasuries and switch to risk-on asset like small caps. Sheets contends—in contrast to many other analysts—that growth will continue unabated, saying “The glass half-full view of stimulus talks is if you don’t get it today you’ll get it tomorrow from whomever wins the election”. He points to the recent outperformance of cyclical and value stocks as evidence that investors are getting more bullish.
China
China, the first country to deal with COVID-19, has also been the first to see some recovery, with economic indicators mostly back to pre-pandemic levels as of October.
But the rest of the world has not been so successful.
The financial disruption in China and around the world has made asset prices more appealing. In March, U.S. stocks plunged to three-year lows. Even as COVID raged, however, Chinese stocks remained strong and are coming back even stronger. According to fund flow data from EPFR, “allocation to Chinese stocks among more than 800 funds reached nearly a quarter of their nearly $2 trillion in assets under management.”
China’s momentum is being driven by its economic recovery, making the country an interesting diversification play in the midst of all of today’s volatility. Here is what investors need to know.
What Is Happening in China’s Economy?
China’s new economy, according to BlackRock, is technology and innovation driven, consumption and service-focused and more open with a growing, more urbanized middle class.
Through 2018, China’s GDP growth averaged 9.5%, which the World Bank described as “the fastest sustained expansion by a major economy in history.” The country’s GDP was US$ 14.140 trillion in 2019 and it’s economy grew by 6.1%. Even with the pandemic, Oxford Economics anticipates a similar 6% GDP forecast for 2020.
Part of this growth is due to increased consumer demand, and a significant shift away from export reliance. In 2012, Chinese consumer spending was $3.2 trillion. This rose to $4.7 trillion in 2017. In December 2019 there was an 8% jump in retail sales and 6.9% growth in industrial production, exceeding analyst’s expectations.
In other words, China is becoming increasingly self-reliant.
That said, it still has its sights set on exports. China has a strong, well-educated workforce that will power the technology and advanced manufacturing sectors, which will be a core part of its economic growth.
China’s Made in China 2025 initiative is a ten-year action plan to bolster manufacturing. Key manufacturing sectors include: New information technology, high-end numerically controlled machine tools and robots, aerospace equipment, ocean engineering equipment and high-end vessels, high-end rail transportation equipment, energy-saving cars and new energy cars, electrical equipment, farming machines, new materials, and bio-medicine and high-end medical equipment.
The plan is focused on (1) improving manufacturing innovation, (2) integrating technology and industry, (3) strengthening the industrial base, (4) fostering Chinese brands, (5) enforcing green manufacturing, (6) promoting breakthroughs in ten key sectors, (7) advancing restructuring of the manufacturing sector, (8) promoting service-oriented manufacturing and manufacturing-related service industries, and (9) internationalizing manufacturing.
But manufacturing is just one component of China’s growing economy.
According to IBIS World, the 10 fastest growing industries in China include: internet services (27.4%), online games at (27.2%), online shopping (22%), optical fiber and cable manufacturing (20.3%), oil and gas drilling support services (8.6%), satellite transmission services (18.5%), alternative-fuel car and automobile manufacturing (17.8%), meat processing (17.3%), energy efficient consultants (17%), and Chinese medicinal herb growing at (16.6%). In other words, the economy is well-diversified.
Why Invest in China?
According to BlackRock, China is an “opportunity too big to ignore.”
Despite the fact that the majority of Chinese companies on the Fortune Global 500 are state-owned, many of its economic leaders are privately owned. For example, COVID-19 related buying benefited Alibaba in the form of a 34% growth rate in its e-commerce business year on year for first quarter of 2020. And Tencent reported a 29% increase in revenue year over year, amounting to $16.2 billion during the second quarter of 2020.
But privately owned companies aren’t the only ones flourishing.
China Life Insurance, for example, has a market capitalization of roughly $100 billion, making it not only the largest insurance company in China, but also one of the largest in the world.
According to Nasdaq, state-owned China Mobile offers “income and price appreciation potential.” The company is huge, with “188,000 5G base stations put into service throughout more than 50 Chinese cities.” And it has an annual dividend yield of 5.95%.
This mixture of publicly and privately owned entities uniquely positions China against economic downturns. For example, rather than directing money to citizens and businesses like the U.S. stimulus, it intervened directly in the labor market by increasing employment in state-owned enterprises (SOEs).
China’s markets are also poised to grow. According to The Financial Times, “the Chinese economy makes up 16% of the world’s GDP and around 14% of the world’s exports, it still only makes up 5% of the world’s equity markets, despite those markets being home to some of the largest companies in the world by market value. The obvious examples are Tencent and Alibaba, companies it is hard to get through the day in China without using.”
Even though China has challenges like the pandemic and US-China trade war, it’s still on a trajectory for long-term growth. That makes it a good investment opportunity now.
How to invest in China
With such a broad economy, investing in China as a theme isn’t as easy as buying shares in a few companies. Rather, China-focused ETFs and mutual funds allow investors to get in on the entire Chinese economy without having to pick and choose sectors. A search on Magnifi suggests that there are a number of different options available to investors today.
Unlock a World of Investing with a Investment Account
Magnifi is changing the way we shop for investments, with the world’s first semantic search engine for finance that helps users discover, compare and buy investment products such as ETFs, mutual funds and stocks. Open a Magnifi investment account today.
The information and data are as of the October 12, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
FINSUM + Magnifi: Look Out for a US Economic Stall
(October 2020)
The outlook for US economic performance took a significant hit this week. That hit was when President Trump called off further negotiations about a stimulus bill until after the election. That means the odds for more stimulus dollars to land in consumer bank accounts in the next couple months plummeted. Oxford Economics argues that with the recent expiration of Trump’s extra payments that he created via executive order, there is going to be an income “cliff” for most Americans. “Without faster job growth — unlikely at this stage of the recovery — or increased fiscal aid, households, businesses and state and local governments will be increasingly susceptible to a deterioration of the health situation”, says Oxford Economics, adding that it may mean the US enters “stall speed”.
FINSUM + Magnifi: The China Situation Will Grow More Tense, and Not Because of Trump
(October 2020)
President Trump has been very critical of China and the US’ relationship to Beijing over the last four years. He has almost single-handedly driven a tense trade war between the two countries. However, following almost four years of escalating stand-offs, something odd is happening—policy experts say that a Biden victory might actually make the US-China relationship even worse than it is with Trump. According to the top Asia official from the Obama years, “I think there is a broad recognition in the Democratic Party that Trump was largely accurate in diagnosing China’s predatory practices”. And according to a former Chinese trade negotiator, “If Biden is elected, I think this could be more dangerous for China, because he will work with allies to target China, whereas Trump is destroying U.S. alliances”. To that point, another commentator, a Chinese policy expert at Renmin University in Beijing says “Biden would make the hard lines more effective and more efficient”.