Blustery Markets Coming — How to Invest

When I was in the Channel Islands, a friend asked me to go flying with him in his 1973 Piper Cherokee. Of course, my 10-year-old son wanted to come too.

I love small planes and getting up in the air. But this trip filled me with some nerves. My friend had once come close to putting down in a field when it got foggy and he couldn’t see the runway. And he was working through some medical issues, which at times stopped him from flying.

But if you want to live and see the island from above, you must take a few small risks. And so, on a blustery day, we set off.

The life raft in the back was a little unsettling. In case we had to land on water. And a few moments after lifting from the runway, you’re straight out above the English Channel. Bumping in the wind. Dropping and rising with your stomach.

Then there’s air traffic control. Jersey is a busy airspace. Private jets. The big Airbuses constantly coming and going to the UK and across Europe for EasyJet, British Airways, and a host of others.

We were under strict instructions to keep below 1,000 feet. EasyJet was coming in from Gatwick.


Heading up over the channel… Source: Simon Angelo

Heading up over the channel… Source: Simon Angelo

When we finally approached the cliff that led back to the runway and touched down, I felt both relieved and exhilarated.

And this is how it can feel these days to be in the financial markets. There’s a lot of risk. But a lot of opportunity…

Where are we going in the markets? And where are the opportunities?

On a fine day, the global dynamics favour the long-run buy-and-hold bull market many analysts predict to keep going.

It’s easy flying:

  • Perpetual low interest rates encourage appetite for risk assets like stocks.
  • Ageing population, pensions and more people living off unearned income than at any other time before supports more money in the markets.
  • Fiscal economic management 2.0. The new approach sees policymakers the world over seeking growth through loose monetary policy.
  • There are still spots of value in global markets. Not all mid- to large-cap stocks are fully priced…yet.

But then there are numerous omnipresent risks. These act like fog, planes overhead, turbulence — even engine failure.

The world is a dynamic place. And especially dynamic today.

The US versus China trade war is unresolved. You can see the markets buck and kick with every fresh update. A deal could be reached. Stocks surge. No chance? They plunge.

A likely outcome is an ongoing slowing of the Chinese economy as they continue to get called out on trade practices.

This has real and instant implications for Australasia.

Australia’s iron exports have just dropped for the first time in 18 years. When Japan’s demand for iron ore slowed in the 90s, China took up the balance. If China steps back, the Australian economic miracle could quickly become a nightmare.

Here in New Zealand, our largest companies depend on Chinese exports. Particularly to the domestic dairy market. If spending pulls back there, we’re under threat.

NZ is especially exposed. The NZX is riding very high. It seems to command a premium to the ASX in terms of average P/E. If a few large companies relying on Chinese business wobble, there’s the potential for a painful correction.

What about offshore?

The trade war is making US stocks bouncy. In the dark days of fear, big export industrials like General Motor [NYSE:GM] have been pulled back.

Europe is grappling with their own issues. Not least, Brexit, immigration, and ongoing anaemic growth.

Due to the wider malaise in Europe, the exchanges there, in my view, still hold value. Particularly the LSE in London, where there are potential bargains.

Of course, these bargains are priced that way for a reason. Brexit is about to unfold. The naysayers say the UK will crash and burn. Boris Johnson and the optimists say it will pave a golden path of innovation and freedom.

On top of these dynamics are other global flashpoints.

Iran. North Korea. More debt now than during the financial crisis — according to the IMF.

So what do we do? Buy gold? Crypto? Where is the yield?

It comes down to finding value. You don’t stop flying because there are risks. You take to the skies and find better places to go.

And that’s what we’re dedicated to doing here at Money Morning.

Speaking of which, as we see the NZX getting richer and harder, we’re going to start looking at some more global options for Kiwi investors.

I started this work years ago in Europe. Finding undervalued companies on the global exchanges. Understanding them. Taking positions. And enjoying the gains and long run income.

Anyway, I’ll touch base again soon once I have some more news on these exciting areas. The skies are open, and they’re filled with opportunity.

Regards,

Simon Angelo

Analyst, Money Morning New Zealand

Important disclosures

Simon Angelo owns shares in General Motors Company [NYSE:GM] via wealth manager Vistafolio.


Simon is the editor of Wealth Morning and has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge fund industry in Europe. Before this he owned an award-winning professional services business and online learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book and manages global share portfolios.


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