How to trade commodities

Commodities trading is a popular way to speculate on a wide number of different markets and assets. Here, we take a look at what it entails and how you can get started.

Commodities trading

What are commodities?

The term Commoditiesis a broad umbrella that covers many products that are pretty much essential to everyday living. In this case, it’s raw, naturally occurring materials that are then processed in thousands of different ways, before turning into products everyone uses in their daily lives.

Crude oil, metals, gold, crops, sugar and so on are all part of the commodities family. These raw ingredients are taken away and turned into food, energy, and clothing.

One thing that sets commodities apart from other tradeable products is pricing. There is a higher degree of standardisation on prices worldwide. It doesn’t matter who is producing the asset or material in question.

For instance, gold produced in a Russian gold mine or Brazilian gold mine would have the same price.

This does change from asset to asset, however. It’s not a hard or fast rule. For example, certain crude oil blends are priced differently using different benchmarks, such as Brent Crude or West Texas Intermediate (WTI).

Why do traders like commodities?

There are a number of reasons why traders like commodities.

  • Variety – With plenty of markets to choose from, traders can select to trade across a wide variety of markets.
  • Safe havens – Some commodities, like precious metals, are strong value stores. They retain their physical value – even in times of global economic turbulence.
  • Speculation potential – Prices of some commodities can be quite volatile. Just look at how oil has changed over 2020-2021 for instance. That means there is a lot of potential for high profits if you speculate correctly. However, this does mean you could lose more money too.
  • Hedging against inflation – Commodities’ value is not pegged to currencies. If a currency’s value falls due to inflation, then a commodity may hold its value in contrast. As such, many traders and investors use them to hedge against inflation.

Adding commodities to an investment or trading portfolio is also a great way to increase diversification. A diverse portfolio, in theory, is more insulated against the risks inherent to financial trading. If one instrument or asset, say equities, falls, then the commodities could help cover those losses.

What commodities can you trade?

We briefly touched on this earlier, but there are lots of different options available to would-be commodity traders.

Generally, commodities can be split into four categories:

  • Metals – This incorporates precious metals like gold and silver, as well as more common, industrial ores like iron, copper, nickel, and lithium.
  • Agricultural products – This category includes both edible and non-edible products. Wheat, grain, cocoa, and sugar are edible commodities. Cotton, palm oil, and rubber are examples non-edible commodities.
  • Energy – The energy market covers crude oil, gasoline, natural gas, coal, and heating oil. It also include renewable energy like wind power and solar.
  • Livestock – Cattle, hogs and other live animals fall under the livestock category.

What drives commodity markets?

Price action in commodities markets is defined by supply and demand. Generally, the higher the demand the higher the price and so on. Low supplies coupled with high demand can lead to high prices too.

We’ve seen this recently with oil markets. Crude oil output had been negatively affected by the COVID-19 pandemic. Demand was low and output was minimal. As of October 2021, demand is high, but output is being kept relatively scarce by producers such as the OPEC+ nations to protect prices.

However, commodities prices can be more versatile than other assets. This is because there are lots of factors at play relating to their production. For example, livestock levels may be impacted by health issues, such as foot and mouth disease. A bad harvest will impact wheat prices. Weather can affect production of commodities, such as a hurricane shutting down natural gas infrastructure in the Gulf of Mexico.

Global economic trends can affect prices too. China and India’s emergence as industrial powerhouses has caused the availability of metals like steel to drop off in other nations.

The above trends make commodities prices hard to predict. Prices can show high levels of volatility. As such, it can be seen as riskier than trading or investing in other assets. Remember: you should only invest or trade if you can afford to take any losses.

How are commodities traded?

Commodities are typically sold on exchanges, in the same way stocks are traded on exchanges. In fact, many would say the birth of trading as we know it started with 18th and 19th century merchants trading crops.

At Markets.com, we offer commodities trading through contracts for difference (CFDs). These allow you to speculate on commodity price movements without owning the underlying asset. These are leveraged products, which means you can take a position with only a fraction of the trade’s value. This means your profits can be amplified – but so can your losses.

There are also commodity exchange traded funds (ETFs). These group together a number of assets into a single basket. Some ETFs will hold the physical assets they’re cover, for example a gold ETF might hold a certain amount of bullion or coins. Some are more complicated and synthetically mimic their underlying market.

A Markets.com account will give you access to a wide range of commodity markets, as well as thousands other assets. Open yours today and start trading your way.

A guide to Trainline shares

It’s been two years since Trainline when public. Since then, Covid has struck. What does this mean for Trainline shares – especially now the UK lockdown is lifting?

A look at Trainline shares

Post-Trainline IPO: the state of play

Its’s been nearly two years since the Trainline IPO. With its initial public offering, the train-journey planning and ticketing app managed to raise £1.7bn. It was one of the hottest UK tech stocks at the time of going public.

In the following months up to February 2020, Trainline stock enjoyed significant share price growth, peaking in February at 547p per share. Just one month later, Trainline shares derailed. The price dropped to a low of 225p in March.

Since then, the story has been one of an upward chug, only for the stock to run out of steam and tank again. The price action has taken Trainline on a bit of a journey up to the current date. It rose again near IPO levels in December, before tanking once again in March 2021, falling from the 52-week high of 536p to 271p.

How are Trainline shares performing now?

At the time of writing, Trainline shares were trading at around 290p.

You may think that the stock price should be about to shoot up. The UK is gearing up to remove nearly all Covid-19 restrictions. That means more travel for both commuting and pleasure. 85% of the UK’s adult population has had their first vaccine.

In fact, Trainline revenues have already shot up year-on-year. £334m in ticket sales was racked up in Q1 – a 324% increase compared with Q1 2020. However, these are still around £150m lower than in Q1 2019.

International ticket sales reached £63m in the same period. Encouraging, but still someway short of the £117m generated in 2019’s first quarter.

Overall, UK ticket sales remain 70% of their pre-pandemic volume.

Trainline shares could still rise as lockdown lifts, but we’ll have to be careful. Competition is rising.

The UK’s long-awaited Williams-Shapps review of the railway sector launched its findings in May 2021. The report recommended the UK set up a government-backed body to oversee the railway sector.

The report states: “A new public body, Great British Railways, will run and plan the rail network, own the infrastructure, and receive the fare revenue. It will procure passenger services and set most fares and timetables. This will bring the whole system under single, national leadership with a new brand and identity, built upon the famous double arrow. This will mark the end of a quarter century of fragmentation.”

Even so, once the report landed, Trainline stock lost a collective £500m.

Consolidation is the driving force behind this government plan. Ask any frequent UK rail traveller and they’ll tell you booking can be a confusing process driven by a Byzantine approach to rail franchising. 20 companies operate UK railways – and there are 55m different fare and ticket combinations available.

Great British Railways is seeking to create a single platform on which all tickets and fares would be available. Given the enormity of this task, Trainline, which offers ticketing for 8 of the 20 separate rail franchise, may not be licked yet.

Where can the Trainline share price go from here?

Trainline is already engrained in the minds of UK consumers. It has millions of downloads, and for many is the go to ticketing service. It already fulfils a key part of Great British Railways targets, in that it brings together a number of franchises into one app.

It also goes beyond simply UK-based travel. As mentioned earlier, the Trainline app allows users to buy international tickets. Coach journeys can also be booked via Trainline. As such, it could continue to focus on and upgrade these parts of its service should Great British Railways emerge as a major threat.

There’s also the fact that the current UK government does not exactly have a great reputation when it comes to developing apps and software. The UK track & trace app designed to help combat Covid is notorious for being poorly conceived, built and implemented with costs spiralling into the tens of billions. There’s also no indication as to when this service will launch either.

As Trainline is already an easy-to-use app, its customers may choose to stick with it.

While the Trainline share price is relatively compared to its peak, it may be able to rise in line with full economic reopening of the UK.

However, there is the added snag of working from home. While the UK government is urging remote workers to start heading back into the office, many are more that content staying working from home. There may be a consistent drop in the number of commuters travelling by train every day.

In the short term, at least, the stock may experience the same price fluctuations we’ve seen since the Trainline IPO was released. It all depends on the UK’s post-lockdown landscape.

As ever, when picking stocks for your trading or investing portfolio, do your research before committing any capital towards Trainline stock. Only invest or trade if you are comfortable taking any losses.

A guide on how to start investing for new pandemic investors

Millions of beginners chose to start investing and trading during the pandemic. If you were one of these, or you’re thinking about taking the plunge, here is what to watch out for.

Did you start investing over the pandemic?

Newcomers hit the investment & trading scene

A recent survey undertaken by Charles Schwab revealed 15% of its clients started trading or investing during 2020 at the height of the pandemic.

A mixture of more time at home and access to trading and investment platforms has led to an upsurge in new retail clients. The bulk of these newcomers are still planning on staying investors and traders after the pandemic subsides.

Interestingly, while there has been a considerable rise of youngbloods investing in Millennial’s preferred assets like cryptocurrency and the so called meme stocks, the mix of newcomers isn’t entirely dominated by younger investors. From Boomers, Gen Xers, and Millennials, there is healthy interest amongst most adult age groups.

What’s more interesting is that Investopedia research suggests a third of pandemic investors knew nothing about investing or trading prior to opening their first position.

If you wish to join them, there are some basic principles that could help you at the start of your journey.

How to start investing in stocks

To start investing in stocks and shares, you’ll first need to know what they are and why you are investing.

The act of investing is buying an asset to keep in the hopes that it will gain value over a long period of time.

A stock, also known as an equity, is security that represents ownership of a small percentage of a company. Units of stock are known as shares. By owning them, you become a company shareholder, and are thus entitled to a proportion of a company’s potential profits appropriate to the number of shares you own.

Some pay dividends, i.e. a share of company profit, but other businesses prefer to reinvest profit back into the company.

It’s a common misconception that investing is only for people who have millions to spend. You can start from a low base. However, investing carries risk of capital loss, no matter how much you choose to sink into different assets. The value of your investment can rise or fall. Be mindful before making any deposits or committing any capital.

Other asset classes to invest in

Of course, stocks are not the only asset to invest in. Plenty of options are available to you. Amongst the most popular financial assets are:

  • Commodities – Oil, natural gas, crops, metals and so on
  • Gold – A traditional store of wealth and a relatively stable investment
  • Forex – Foreign currency
  • Cryptocurrency – Digital currencies like Bitcoin and Ethereum
  • Mutual funds – A collection of assets overseen by a financial manager

What about trading?

Trading is similar to investing but is based around short term activity. With trading, you do not own the underlying asset. Instead, you trade on the asset’s price movements using products like Contracts for Difference (CFDs) or activities like Spread Betting.

Also, unlike investing where you want your asset to increase its value over time, trading means you can speculate on an asset’s price failing. This is known as shorting.

Trading allows you to get market exposure for a fraction of an asset’s total value. Brokers like Markets.com offer leverage, which allows you to trade on margin. That means you only have to place down a small percentage of how much an asset is worth to open a trade.

With trading on margin, you can potentially make some big wins. However, it would mean any losses would be magnified too, making it a riskier endeavour than simply investing.

Mistakes to avoid if you want to start investing or trading

No diversification

Investopedia’s recent research into the pandemic investor surge suggests 56% of newcomers weigh their portfolios too heavily in favour of a single asset. Most successful investors and traders ensure they have a diverse portfolio.

Diversification is important because it helps mitigate risk and gives balance to your trades. Even if you’re looking at how to start investing in shares, it’s important to have a broad base of stocks across different sectors. That way, if one sector is performing badly, you can use others to hedge against potential losses with gains from other stocks.

It’s important to also consider different assets, not just equities, when putting a portfolio together too.

Doing little to no research

When getting started with how to invest in stocks, it’s massively important to do your research. Investing and trading comes with a risk of capital loss. There are lots of factors at play that affect stock’s price, but there is a lot of information available to you to help you make a research-based decision prior to committing any money.

There are lots of ways to do your due diligence and research. Fundamental and technical analysis, for instance, is used by many successful investors when they pick stocks. These look at fundamental aspects of a stock, i.e. how the company is performing financially, and the technical, such as price trends over time.

You can also use the multitude of tools available to you on our trading and investing platforms, including powerful charts and sentiment indicators, to help you decide.

While we cannot advise you on which assets are worth spending your money on, we can say it is better to do research than go in blind. Fail to prepare and prepare to fail. So, read up on things like company performance, check earnings reports. Has there been any management or personnel changes? What are the broader market conditions? All these will give you a better picture on whether to invest or not.

Emotion-led decision making

This pairs with the above. Investopedia’s look into new investors’ habits reveals that just over a quarter of pandemic players are trading or investing on gut feeling alone. It’s not advisable to do that.

Experience may lead you to be able to spot trends down the line, but if you’re just about to start investing, do as much research as possible. Try to not let yourself be ruled by emotions. Investing is a long-term process. Spontaneity and knee-jerk reactions should be avoided.

Careful research and patience are what separates a successful investor from a mediocre one.

Taking investment advice from unreliable sources

No one can definitively tell you how to spend or invest your own money. Everyone’s circumstances and attitudes to risk are different.

Recently, with the rise of the Reddit forum /r/wallstreetbets and meme stocks (GameStop, AMC, etc.), more and more investors are turning to untrustworthy corners of the internet to get advice. It can be tempting to hop on the bandwagon and pour cash into flavour of the month equities.

Always take their advice with a grain of salt. YouTubers and influencers are often seeking to aggrandise themselves, grow their audience, and ultimately make money for themselves.

Instead, if you are seeking analyst opinions, look for reputable sources, such as the Financial Times or CNBC. Speaking with a reputable financial advisor can also help but, as if you were looking at assets to add to your portfolio, always ensure you’ve researched them thoroughly beforehand. Look at their client reviews and so on.

How you can start investing with Markets.com

At Markets.com, our Share Dealing and Investment Strategy Builder services allow clients to start investing at their own pace.

Asking yourself how to start investing in shares? Click here to learn more about our investment services.

Please note: these services are only available in certain jurisdictions.

Thematic Investing with ETFs

Thematic investing and ETFs go hand in hand. Here’s a quick overview of what both entail so you can get started on a theme-led trading or investing strategy.

A look at ETFs and Thematic Investing

What are ETFs?

ETFs are exchange traded funds, a financial product that combines the properties of a funds and equities.

Each exchange traded fund is composed of different assets grouped together. These might be equities, commodities, bonds, or a mixture of all of them. The assets inside an exchange traded fund track the performance of the fund’s underlying market as closely as possible.

An ETF vs an Index fund

There are some similarities between the pair, but ETFs and index funds do hold some key differences. Here’s a very quick outline of what separates the two.

  • ETFs can be bought and sold at any time, whereas index funds are only available at the price set at the end of the trading day.
  • Exchange traded funds generally require lower minimum investment
  • ETFs are typically more tax efficient

For retail investors and traders, an ETF may be the better option, but this of course all depends on individual goals, personal capital expenditure and so on.

Do ETFs pay dividends?

That depends on the type of ETF. An income fund will distribute any interest and dividends back directly to you, as the name suggests.

An accumulation fund, on the other hand, will not pay a dividend. Instead, it will reinvest any accrued gains back into the fund, raising the value of your investment.

Both are valid options, but again it depends on what you are trying to achieve when investing or trading an ETF.

How does thematic investing apply to exchange traded funds?

The beauty of ETFs is that they are perfectly suited to a thematic investing strategy.

By their very nature, they group together specific assets into one product. They offer exposure to trends, industries, technologies and sectors all in one product – ideal for those who do not want to do they analytical legwork associated with other forms of investing and trading.

One thing in common with thematic ETFs is that they tend to be forward-facing. Many of the available funds out there focus on disruptive technologies and trends.

For instance, cryptocurrency and bitcoin is huge business right now, as one of the most popular trends amongst millennial investors. If this piques your interest, you may want to invest in a crypto-themed ETF.

A space travel-focussed ETF will cover numerous assets around space exploration, i.e. companies that offer commercial space flight, rocket engine manufacturers, raw materials suppliers, and so on.

Cathie Woods’ ARK series of technology-driven ETFs are the perfect example of themed funds. Each is split into different niches and ideas based around disruptive technologies:

  • Innovation
  • Fintech innovation
  • Autonomous technologies & robotics
  • Next generation internet
  • Genomic revolution

So, for example, the fintech innovation fund is based on “innovative and disruptive financial technologies.

“Companies represented within ARKF transaction innovations, blockchain, risk transformation, frictionless funding platforms, customer-facing platforms, and new Intermediaries”.

By packaging assets in the fintech space together into a single tradable asset, investors in that ARK ETF would be gaining exposure to multiple assets and mitigate their single stock risk.

How popular are thematic ETFs?

Very. In Europe alone, thematic ETFs attracted a record €9.5bn in new assets across 2020, bringing the total assets under management (AUM) for thematic funds up to €22.7bn – an all-time high.

In the US, thematic ETFs AUM stands at $183 billion, according to Global X’s Q1 2021 thematic investing report. That represents 2% of the US’ total ETF sector, but, crucially, 7% of revenue. That may look small, but growth has been massive.

Global X reports that US thematic exchange traded funds’ assets under management has risen 430% since Q4 2020. The volume of inflows has tripled since 2019. Aggregate AUM reached $133.1bn at the end of Q1, up 28% from the $104.1bn AUM achieved at the end of Q4 and exceeding the broader US ETF industry’s 7% q/q gain.

There are now 163 thematic exchange traded funds listed on US exchanges – an increase of 13 over Q4 2020. None have been closed either.

In terms of returns, we can look at the performance of some European ETFs to see what makes them a popular choice for retail investors. Some of the funds with the highest ROI include:

  • iShares Global Clean Energy ETF (INRG) – 120%
  • WisdomTree Cloud Computing ETF (WCLD) – 92%
  • VanEck Vectors Video Gaming and eSports ETF (ESPO) – 68%

Risks of thematic investing with ETFs

As with any financial product or asset, the value of an ETF can rise or fall. As such, you can lose money, so only invest or trade if you are comfortable with any potential losses.

There are risks around liquidity too. A surge in investor interest in a specific sector may cause a rally in a fund’s underlying index or component assets. If this is the case, investors may start selling their holdings, and trigger a liquidity shortage. The fund would have to be rebalanced accordingly to protect against this.

As ever, due diligence and research are important here. Make sure you do yours before committing any capital.

Top stocks of 2021

Stock markets are broadly higher this year, with the S&P 500 up more than 10% since the start of January. UK equities have also had a decent start through to the end of May and are up almost 9% this year. In Europe, the Stoxx 600 is 11% YTD. 

Here we look at some of the top-performing stocks of 2021. 

UK: Restaurant Group (RTN) leads the way with the stock up more than 90% as the UK enjoys a positive reopening story. Share have risen as investors bet on the company, owner of Wagamama, enjoying strong demand as consumers return. The company has tapped investors for £175m and completed a £500m debt refinancing to cover it over through to the full reopening of the economy and support its delivery network expansion. It had swung to a £127 pre-tax loss last year. Shares are up about 140% from the depths of the pandemic. 

FTSE 350 

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
FTSE 350 Index  .FTLC  0.95  0.93  0.50  2.14  6.06  11.27  8.77  19.11 
Restaurant Group PLC  RTN.L  3.19  -1.13  2.50  2.16  28.23  94.04  93.74  191.16 
Ferrexpo PLC  FXPO.L  -1.65  -4.13  5.74  13.89  42.83  163.20  82.45  228.11 
Tullow Oil PLC  TLW.L  -2.15  -3.48  -5.58  10.25  49.79  101.34  72.68  101.50 
Future PLC  FUTR.L  9.58  25.61  23.05  27.03  51.09  45.49  67.09  185.27 
Gamesys Group PLC  GYS.L  -0.16  -0.80  -3.62  -2.97  37.94  72.05  63.60  125.24 
Mitie Group PLC  MTO.L  2.15  6.75  6.92  3.75  25.28  69.60  61.95  83.78 
Royal Mail PLC  RMG.L  2.82  4.09  8.83  8.22  12.55  81.93  59.85  213.29 
Investec PLC  INVP.L  3.83  4.79  0.48  18.49  45.72  52.87  56.38  81.81 
Virgin Money UK PLC  VMUK.L  3.14  7.14  2.75  11.65  20.30  41.40  52.86  152.21 
Bytes Technology Group PLC  BYIT.L  1.09  1.69  3.45  4.85  20.06    52.24   
Just Group PLC  JUSTJ.L  -0.47  -1.22  -3.48  1.84  23.96  75.50  50.64  105.66 
TUI AG  TUIT.L  -2.91  5.58  -0.77  13.67  19.79  55.94  48.45  131.46 
Hammerson PLC  HMSO.L  1.10  5.48  -7.76  1.27  77.88  58.47  47.89  25.92 
Ashtead Group PLC  AHT.L  1.52  3.53  9.14  10.88  27.06  59.57  47.64  115.91 
Morgan Sindall Group PLC  MGNS.L  0.00  -2.20  -3.26  17.23  54.73  60.07  45.23  92.14 
Mitchells & Butlers PLC  MAB.L  2.28  1.49  -0.57  7.69  7.63  59.47  44.56  125.17 
Greencore Group PLC  GNC.L  0.18  2.70  5.48  7.58  22.19  47.75  43.69  20.95 
Redde Northgate PLC  REDD.L  0.80  1.33  4.40  9.83  47.00  51.70  42.86  102.13 
EVRAZ plc  EVRE.L  0.94  -0.89  3.99  9.87  20.01  76.77  41.65  153.41 
C&C Group PLC  GCC.L  1.14  11.79  7.56  18.62  35.00  50.28  40.04  69.47 
IMI PLC  IMI.L  -0.06  -0.73  2.13  17.55  21.49  48.27  39.74  87.99 
Greggs PLC  GRG.L  0.93  -0.72  5.81  10.54  19.47  44.67  39.50  44.42 
Indivior PLC  INDV.L  -0.13  1.82  -1.25  11.63  18.10  14.95  38.51  161.18 
Kingfisher PLC  KGF.L  -0.56  3.57  4.73  3.92  35.48  32.23  38.39  121.42 

 

Europe: Spain’s Banco Sabadell (SABE) is the top performer, with shares up 80% YTD and +140% in the last 12 months. The bank’s TSB unit swung to a profit in the first quarter as cost-cutting measures helped offset a 22% drop in earnings. Banco reported net profit of €73m, beating forecasts as like most banks it was able to book fewer bad loss provisions.  

 Stoxx 600 

 

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
STOXX Europe 600 EUR Price Index  .STOXX  1.27  1.05  1.03  1.87  6.51  13.42  10.74  28.90 
Banco de Sabadell SA  SABE.MC  0.85  -4.55  20.82  39.43  63.18  54.66  80.00  140.18 
Evolution AB (publ)  EVOG.ST  5.99  0.15  -14.04  3.03  33.32  117.76  72.16  172.61 
Kindred Group PLC  KINDsdb.ST  3.91  -2.37  -5.73  -9.80  9.00  96.11  71.43  185.04 
Royal Mail PLC  RMG.L  2.82  4.09  8.83  8.22  12.55  81.93  59.85  213.29 
Nordic Semiconductor ASA  NOD.OL  9.80  10.42  3.88  20.84  26.25  76.57  55.07  229.23 
Bank of Ireland Group PLC  BIRG.I  -0.20  -2.05  3.81  19.50  50.21  91.53  53.58  210.54 
Societe Generale SA  SOGN.PA  0.48  1.61  10.33  21.38  31.85  61.56  53.42  105.21 
Virgin Money UK PLC  VMUK.L  3.14  7.14  2.75  11.65  20.30  41.40  52.86  152.21 
Porsche Automobil Holding SE  PSHG_p.DE  1.68  1.27  -3.20  -8.35  30.55  50.37  50.32  83.75 
Getinge AB  GETIb.ST  2.53  3.05  0.31  6.29  27.45  55.02  49.61  63.16 
Banco BPM SpA  BAMI.MI  -2.17  4.08  13.97  19.88  24.82  39.30  49.39  150.21 
Bank Polska Kasa Opieki SA  PEO.WA  0.89  7.30  13.44  19.47  35.16  59.30  48.61  76.52 
TUI AG  TUIT.L  -2.91  5.58  -0.77  13.67  19.79  55.94  48.45  131.46 
Valmet Oyj  VALMT.HE  -0.06  1.79  -0.26  3.06  25.66  63.46  48.42  56.24 
Ashtead Group PLC  AHT.L  1.52  3.53  9.14  10.88  27.06  59.57  47.64  115.91 
Bankinter SA  BKT.MC  0.23  0.23  3.45  15.61  25.58  51.64  47.39  83.36 
Natixis SA  CNAT.PA  0.02  -1.31  0.47  0.77  0.59  62.60  46.40  105.18 
Kuehne und Nagel International AG  KNIN.S  2.09  5.97  7.33  3.53  39.46  49.11  45.92  106.70 
Compagnie de Saint Gobain SA  SGOB.PA  1.81  -0.49  3.75  4.03  25.94  37.76  45.25  119.11 
Dialog Semiconductor PLC  DLGS.DE  0.25  0.15  -0.37  1.09  -0.46  75.79  45.22  85.32 
ING Groep NV  INGA.AS  0.70  2.98  2.75  7.67  22.03  41.64  42.94  104.72 
DSV Panalpina A/S  DSV.CO  3.14  4.03  4.75  10.94  27.31  40.43  41.67  95.32 
EVRAZ plc  EVRE.L  0.94  -0.89  3.99  9.87  20.01  76.77  41.65  153.41 
Tenaris SA  TENR.MI  -0.62  -2.96  4.62  6.23  29.52  49.95  41.49  60.15 

 

US: Nucor (NUE) is the YTD top performer for the S&P 500 as the steelmaker is expected to benefit from a big increase in infrastructure spending in the US. The company reported record earnings in the first quarter and CEO Leon Topalian said he expects the whole of 2021 to be strong. The Charlotte, North Carolina company posted $7 billion in revenue, which was up 25% year-on-year and up 15% compared with the same quarter in 2019. 

S&P 500  

  Percentage Change 
Name  RIC  1d (%)  5d (%)  MTD (%)  1 mth (%)  3 mth (%)  6 mth (%)  YTD (%)  1Y (%) 
S&P 500 Index  .SPX  1.06  1.13  -0.53  0.58  6.46  16.91  10.73  39.96 
Nucor Corp  NUE  -0.39  0.33  22.94  28.84  74.24  92.45  90.13  148.60 
L Brands Inc  LB  -3.91  -1.63  -1.85  0.87  28.51  61.82  73.92  429.30 
Marathon Oil Corp  MRO  -0.69  4.16  2.40  14.05  22.01  105.89  72.86  93.78 
EOG Resources Inc  EOG  -0.02  1.18  9.34  17.43  28.81  77.40  61.46  52.93 
Gap Inc  GPS  -4.01  -2.75  -1.57  2.52  34.91  33.69  61.37  343.87 
Devon Energy Corp  DVN  -0.08  2.06  8.04  20.46  22.21  93.44  61.01  109.31 
Capital One Financial Corp  COF  0.42  0.97  5.86  20.01  31.99  88.81  59.65  156.69 
Freeport-McMoRan Inc  FCX  1.23  -1.79  9.31  14.88  9.95  93.98  58.42  351.97 
Diamondback Energy Inc  FANG.O  -1.78  0.43  -6.36  3.04  16.71  92.09  58.12  75.29 
Seagate Technology Holdings PLC  STX.O  -2.75  11.12  4.29  17.49  32.38  74.11  55.76  86.73 
Hess Corp  HES  -0.93  3.15  10.00  21.01  28.91  76.11  55.26  73.13 
Invesco Ltd  IVZ  -0.60  -1.81  -1.33  3.30  18.56  69.47  52.84  261.47 
Mosaic Co  MOS  -1.05  0.78  -0.65  8.51  20.19  78.23  51.89  198.21 
Wells Fargo & Co  WFC  -0.95  -1.44  1.51  7.50  20.88  79.47  51.52  86.50 
Applied Materials Inc  AMAT.O  4.42  8.66  -1.81  1.34  9.08  69.84  51.00  129.10 
Fifth Third Bancorp  FITB.O  -0.38  -1.07  2.44  13.97  20.24  64.22  50.63  134.63 
News Corp  NWSA.O  4.00  3.05  3.26  2.11  20.22  54.39  50.53  136.24 
Mohawk Industries Inc  MHK  0.05  -5.03  1.20  6.07  20.98  63.55  47.54  150.46 
Iron Mountain Inc  IRM  2.09  2.67  7.18  8.89  33.66  67.38  45.86  80.07 
Lumen Technologies Inc  LUMN.K  -1.53  0.28  10.68  11.99  18.93  41.43  45.64  43.43 
Schlumberger NV  SLB  -0.72  0.03  17.45  25.82  21.63  57.20  45.53  74.46 
People’s United Financial Inc  PBCT.O  -0.69  -1.16  3.75  8.35  19.96  47.76  45.48  65.00 
APA Corp (US)  APA.O  -0.91  1.13  3.15  21.35  14.48  80.33  45.38  72.64 
Snap-On Inc  SNA  -0.39  -1.91  4.44  5.79  27.28  43.50  44.99  85.57 

 

*Source: Refinitiv, prices correct as of May 21st. 

Gold funds vs cryptocurrencies: which is the new safe bet?

To help settle the ongoing debate, we look at the pros and cons of taking an old school investing approach with gold funds or putting cash into cryptocurrencies.  

Golds funds & cryptocurrency 

Gold as a store of value 

With the emergence and rapid price growth of Bitcoin and other digital tokens, a new breed of investors is looking to use cryptocurrencies as a store of value or a safe haven to hedge against inflation. Gold is seen as a safe haven and acted as a store of value, maintaining its purchasing power over thousands of years. 

Gold seems less interesting to some newer, younger, investing circles. They say it’s old news, a relic of the past.  

Is that really the case? Gold holds many characteristics that make in ideal store of value:  

  • It’s held intrinsic value since the dawn of human civilisation 
  • It’s scarce but in high demand  
  • It’s a physical, tangible asset with many different forms 

The precious metal is also no longer tied to currencies, nor is it pegged to the stock market either. That means gold can be used to hedge against fluctuations in currency markets and share prices.  

The consistency of the gold price is one of its biggest attributes where investors and traders are concerned.  

That’s not to say gold isn’t volatile in terms of its market pricing. Gold prices do fluctuate thus gold funds can go up or down in value. For instance, gold started 2021 at around $1,950. At the time of writing, the gold price was around $1,778.  

Comparatively though, gold can still be seen as a safe haven, protecting against inflation in particular. 

Storing value in Bitcoin 

Bitcoin is the most popular cryptocurrency and a bellwether for the market as a whole. It’s certainly the most valuable, currently trading at around $40,000 (as of May 20th, 2021).  

Because of its enormous per-token price, Bitcoin has been identified by some commentators, such as Citibank’s Tom Fitzpatrick, as “digital gold” – a place to store value in a digitally-led world.  Much like gold, the supply of Bitcoins is finite. Only 21 million tokens will be “mined”, or created via complex computational processes using blockchain tech. 

But we must stress volatility here. Bitcoin prices started 2021 at $34,000. It climbed to an all-time high of $64,000 in April 2021, before falling back below $30,000 in a sharp market crash on May 19th  

What’s interesting, though, is how the digital token’s use has changed. Bitcoin was originally conceived as an alternative to traditional fiat currency.  

Buyers could use the token to pay for goods and services, rather than using pounds, or euros, or dollars and so on. While Bitcoin can still be used as such, it’s massive per-token price means investors are increasingly buying it to hold onto, or HODL, than using it for its intended purpose. 

Of course, Bitcoin is not the only digital currency on the market. Ether, the token for the Ethereum blockchain, is the second most popular digital coin on the market. At the time of writing, Ether is trading at around $2,700.  

Unlike Bitcoin tough, Ether has a more practical use in the sense that transactions used on the Ethereum blockchain 

Other tokens like Ripple, Dogecoin, Dash, and Polkadot continue to draw investor/trader attention. However, they have yet to reach the price heights of Ether or Bitcoin. 

At the start of May 2021, the total cryptocurrency market was valued at $2.3 trillion. Gold’s total valuation is somewhere in the region of $11 trillion. 

Gold funds & cryptocurrency: head-to-head 

So, what are the pros and cons of putting your money into a gold fund or investing in digital currencies? 

Rarity 

As we established earlier, part of what fuels the gold price is its rarity. It’s a precious metal, and extraction levels have started to drop off. We may still be some way off peak gold, but the supply shrinks each year, unless a new major discovery occurs.  

Bitcoin is also in finite supply, and the algorithm through which new tokens are generated has been altered to make them even rarer. Not all cryptocurrencies have a maximum cap, but they often put a limit on the amount of coins mined per year. 

Inherent value 

Again, we touched on this earlier. Gold has always held value for many reasons. Its rarity combined with its practical uses means it is likely to stay in high demand. 

Cryptocurrencies’ value, in price terms, has risen massively since Bitcoin was first founded in 2009. Digital tokens are meant to be the next step in global currency. Their creators hope to see more people using them for everyday transactions. The true value of cryptocurrencies, and if they will even be used for this purpose, is yet to be seen.  

Some commentators like Bank of England Governor Andrew Bailey, believe cryptocurrencies have no inherent value, which puts off more traditionally minded investors from exploring digital currencies. 

Volatility 

On the price of gold is much less volatile than the price of cryptocurrencies, especially Bitcoin.  

There are some tokens called stablecoins, such as Tether, which are supposedly tied to the US dollar. These are thought to exhibit less volatility than their non-paired cousins, but these do not have the same massive per-token price tag as Bitcoin or Ether.  

Cryptocurrency price movements are also much more susceptible to market news and opinions. Even a tweet from the likes of Elon Musk can cause the price to skyrocket or tumble. Gold, while still having its own ups and downs, such as reacting to high government bond yields, does not move to the whims of markets quite so spectacularly. 

Availability  

Gold and cryptocurrencies are available to anyone who has the money.  

In terms of gold, it is available as both a physical product in a myriad of forms and a tradeable commodity on global exchanges. Gold ETFs are among the most popular ways for investors to access gold since it enables exposure to the metal without the requirement to take physical delivery and store it. 

There are no physical crypto tokens. They are an entirely digital asset. However, they can be bought via exchanges and kept in digital wallets, or tradeable with leverage via Contracts for Difference (CFDs). Gold CFDs are also available. 

Transparency, safety & legality 

Because of its long historical importance, gold has one of the most well-established tracking, authentication, weighing, and trading systems in the world. It is exceptionally difficult to forge or corrupt gold. It’s one of the reasons why gold is such a safe haven. 

Cryptocurrencies run on decentralised platforms. While that means they are accessible to anyone, there is no central governing body overseeing their creation and distribution.  

That being said, blockchain technology contains lots of encryption and complicated algorithms that makes it hard to hack and corrupt. But there have been some recent cases of exchanges collapsing and hundreds of millions of dollars’ worth of coins going missing.  

While institutional support is also rising for digital currencies, there is also major push back. Retail crypto trading is banned in the UK, for example. India and Turkey are also mulling bans. Wholesale acceptance is still some way off. 

Should you invest in gold funds or cryptocurrency? 

The jury is still out.  

Bitcoin and cryptocurrency have potential, but their inherent volatility plus regulatory woes may put off investors.  

Gold, on the other hand, represents surety and security. For the more cautious investor, a gold fund may be the way to go. 

In either case, investing and trading comes with risk of capital loss. You should only invest or trade if you can afford to take any losses. 

A few things to consider when making a deposit

At times, the market will move suddenly due to some freak data being released, impacting your trade. Then the margin call comes, or a stop-loss is hit, and you are closed out; only for your trade to return to its initial uptrend. If only you’d not put that stop so close, or not risked such a large amount of equity on a single trade, it could have been a winning one.

Understanding how to make the most of your money is an important trading and investing skill. The amount you deposit has an important bearing on how much you can trade.

Making your first deposit

Margin & leverage

When trading on CFDs and other leveraged financial products, you use margin and leverage. Trading on margin essentially allows you to control a larger position. You put down your small percentage, and your broker, in this case, Markets.com, covers the rest.

This is standard industry practice, but it means traders can use less of their capital to open positions.

Trading on margin can result in significant profits. However, it also increases your risk. You may take heavy losses if your trade moves against you.

Looking at how much to deposit

While trading on margin lets you gain exposure for only a small percentage of a trade’s overall value, having a low overall deposit may actually work against you in the long run due to market volatility

Let’s look at an example with a spread bet account (values are purely indicative for the sake of this example).

With an £100 deposit, you would be able to open a position of about £2,000  of FTSE i.e. the initial margin requirement is 5%, meaning leverage of 20:1 (20×100 = £2,000).

The initial margin to open the account is 5%. The maintenance margin – the amount of equity you require to keep the position open – is 2.5%, or £50 in this example.

If the market declined by only slightly more than s 2.5% (i.e. £50 of your £2,000 position), then you could be facing a margin call.

A margin call is where your broker requires you to invest more cash to cover any potential losses. Failure to meet a margin call could result in your position being closed, i.e. closed out.

Because your deposit was so small, you would be more likely to face a margin call just on a fairly normal amount of volatility. The FTSE 100 does not often more 2% in a day, but over a couple of sessions, it is quite common.

However, if you deposited £500 you could open the same £2,000 FTSE trade, but the market would have to move more like 20% against you before you’d be closed out. A 2.5% move, or £50, against you, would still leave £450 of equity or close to 25% of the position size. This therefore more flexibility to handle intra-day volatility and is particularly important if you are holding positions overnight.

As such, you would be able to ride out more volatility. You would be able to continue trading in the hope of turning a profit once the market turns back in your favour. Of course, the other side of the coin is that if you failed to close a losing position to minimize losses, you could eventually lose all of your initial stake.

With the cushion of more capital, you are protected against market volatility. This is very important, especially if you are planning to trade particularly volatile assets which can change price dramatically from hour to hour.

A higher deposit would potentially allow you to:

  • Control a large nominal position
  • Protected against market volatility

Another way to look at this is to trade within your limits. Never risk more than you are willing to lose and never risk too large a percentage of your account. In the example above, instead of using all my account (£100) to get the maximum exposure I can (£2,000), I am using only 10% of my account to open the position.

Good risk management remains important to prevent running losses. The example above is only to highlight how having a buffer in your account enables you to ride out volatility to avoid a ‘winning’ position get closed out early.

Managing your risk

Managing your risk is key to becoming a successful trader. While you may be depositing more money, a higher deposit can act as a protection against higher losses for the reasons outlined above.

Be aware, however, that the market can move against you. You should only ever trade if you are comfortable with the risks and if you can afford to take any potential losses.

Do your research and market analysis before committing any capital. Always take the time to monitor your positions closely too.

Learn the stock market: understanding stocks

In this guide, we’ll help you understand stocks, what they are, and how they’re grouped, so you can enter the world of stock market trading and investing.  

Understanding stocks & how they work 

What are stocks? 

Understanding stocks is simple. When you buy stocks and shares, you are buying a small piece of a company. This is called equity ownership and another name for stocks or shares is equities.  

Buying them means you’re a shareholder and are now entitled to capital appreciation and dividends if the company pays them. Dividends are payments made to shareholders as a share in a company’s profits. However, not all companies pay them. 

Essentially, you hold onto stocks in the hope they will increase in value. This is investing. You would physically own the shares you have bought. 

Stock market trading, on the other hand, is trading on a stock’s price movements. This is done using financial products called derivatives, such as contracts for difference (CFDs) or spread betting. Here, you don’t own the underlying asset you are trading. Any profit made is generated from movements in share prices. 

Asset sectors 

Another key part of understanding stocks is understanding asset sectors. To properly learn the stock market, you will have to learn what sectors equities are usually grouped into. Different sectors tend to move in different cycles, falling in and out of favour with traders and investors, and changing performance levels, throughout the year. 

A lot of investors and traders diversify their portfolios by picking equities from across the sectors. This helps them mitigate their risk. We’ll take a look at portfolio diversification later on. 

For now, we’ll look at the main sectors stocks are grouped into. 

Consumer discretionaryStocks that offer non-essential services. Think luxury goods, or consumer goods outside core needs. Examples of consumer discretionary stocks include: 

  • Nike 
  • McDonald’s  
  • Disney 

Consumer staplesThese are stocks in companies that produce products that are considered essential. Think items like food, drinks, agricultural products, tobacco, and pharmaceutical products. Non-durable household goods and personal products, including grocery stores and supermarkets are also included in this asset category. 

Examples of consumer staple stocks include: 

  • Nestlé 
  • Tesco 
  • Proctor & Gamble

EnergyThese are stocks companies who produce energy. Oil & gas tends to dominate here, but this class also includes started to include renewable energy stocks, nuclear and coal power. 

Examples of energy stocks include: 

  • ExxonMobil 
  • Royal Dutch Shell 
  • Canadian Solar  

FinancialsFinancials are stocks that cover financial services for retail and commercial customers. This includes banks, insurance companies, savings plans, investment managers, mortgage companies, and real estate. 

  • ING 
  • HSBC 
  • Allianz 

HealthcareCompanies that deal with medical goods and services fall into the healthcare stocks sector.  This includes hospital management firms, medical equipment, and medical products. It also includes research, development, production, and marketing of medical equipment, pharmaceuticals, and new biotechnology. Examples of healthcare stocks include: 

  • Bayer 
  • GlaxoSmithKline 
  • AstraZeneca 

IndustrialsIndustrial stocks cover a lot of different sub-sectors. In this case, we’re looking at aerospace, industrial machinery, and military & defence equipment. It includes cement, metal fabrication, pre-fab houses, and waste management. Industrials also include airlines and transport & logistics. Examples of industrial stocks include: 

  • IAG 
  • EasyJet 
  • BMW 

MaterialsCompanies in this sector are involved in the production or extraction of materials, as well as chemical production. Paper, containers and packaging also fall under the materials umbrella. Examples of Materials stocks include: 

  • BASF 
  • Rio Tinto Group 
  • Anglo American  

TechnologyThis sector includes IT businesses and companies that research, develop, produce, and distribute communication equipment such as cell phones, towers, cable, etc. It includes computer hardware and software, home entertainment, office equipment, data management, processing systems, and consulting services. Examples of technology stocks include: 

  • Apple 
  • Microsoft 
  • Spotify 

UtilitiesThis sector distributes electricity, oil, gas, water, etc.  Example of utility stocks include: 

  • E.ON 
  • Engie SA 
  • SSE 

How are the different asset classes affected by different economic cycles? 

Different asset classes behave differently depending on how the economy is performing. A good example of this is the difference between how consumer staples and consumer non-discretionary stocks behave.  

In tough economic times, the share price of non-discretionary stocks will likely go down. That’s because consumers won’t necessarily have the spare cash to spend on luxuries. Conversely, the share price of staples might go up because their services or products are considered essential. 

Utilities are also considered essential, so the share prices, in theory, should remain relatively stable. Until very recently, oil & gas stocks used to be very strong too. However, they are susceptible to volatility caused by market conditions. Oil prices crashed during the Covid-19 pandemic, and thus oil companies have seen their share prices fall in line with that. On the other hand, with governments investing heavily in renewable energy, green energy stocks are rising. 

Essentially, the principle of supply and demand is at play here. More on that later. 

Understanding stocks: Portfolio diversification 

Diversifying your portfolio is a way of mitigating your risk. In practice, it basically means building a portfolio of stocks from different sectors. The theory goes that if a sector is underperforming, any losses created as a result can be offset by gains in stocks in other sectors that are performing well. 

All investing and trading are risky. You can make a profit, but you can also make losses. Any steps to help lower your risk should be taken. Understanding stocks and learning how stock trading works will help you do just that. Remember to do careful research when picking equities to add to your portfolio. 

Where do stocks get their value? 

A stock’s value comes from the principles of supply and demand. High demand usually means a higher price; low demand usually means a lower price. Another factor that gives a stock value is the ROI it can give to investors and traders.  

Investors might look at stocks with strong fundamentals. Other this smaller, under-appreciated businesses are the best companies to invest in, as they might have great growth potential. What you choose is up to you, but a blend of technical and fundamental analysis will give you a clearer view of the markets and help inform your choices. 

There are some methods you can use to find out a stock’s valuation and whether it has been under or overvalued. 

Which cap fits? 

Away from asset classes, stocks can also be grouped according to their market capitalisation or market cap. This is a key part of learning the stock market.  

This is how market cap is calculated: 

  • Total outstanding company shares x share price 

There are no official market cap groupings. However, the market generally divides companies into the following groups. 

Group  Value 
Mega cap  $200 billion or over 
Large cap  $10-200 billion 
Mid cap  $2-10 billion 
Small cap  $300 million – $2 billion 

 

There are also micro and nano cap stocks, covering up to $300 million. 

Mega and large cap stocks are generally thought to have less growth potential but are more likely to weather challenging market conditions. Smaller stocks may offer higher returns, but this is tempered by potentially high volatility.  

Dividend stocks 

A dividend is a portion of a company’s profits it can choose to return to shareholders. Dividend stocks are those that pay out this little reward.  

Not all companies pay dividends, but those that too tend to be popular stock picks. You might consider them if you’re going for a long-term investment strategy. They may be some of the best shares to invest, so if you’re learning the stock market read up on dividend stocks. 

Investing, trading & risk 

Trading and investing are both risky. You can make money, but you can also lose it if stocks turn against you. Only pursue these activities if you can afford any potential losses. 

Earnings season: estimate-topping stocks to watch

It’s the final week of April: a time that traditionally brings opportunities for earnings-driven volatility.

Many companies reporting their quarterly earnings have strong track records of beating analyst estimates and subsequently seeing their share prices rise.

Bespoke Investment Group, as reported by CNBC, has pulled together the below list of firms that, 90% of the time, beat estimates, and enjoy average day-after jumps of at least 1%.

Stock Company EPS beat % Average 1 day % price move
TDY Teledyne Tech 100 2.18
AVNT Avient 100 1.5
TRU TransUnion 100 1.27
NGVT Ingevity 100 1.74
GFF Griffon Corp 100 11.41
OPI Office Properties 100 2.62
UFI Unifi Inc 100 2.33
CSGP CoStar Group 96.7 2.18
EXPO Exponent 96.6 1.56
SHOP Shopify 95.7 3.54
PATK Patrick Industries 94.7 1.2
JBT JBT Corp 93.5 1.75
MA MasterCard 93.2 2.09
SLAB Silicon Labs 92.3 1.29
SYNH Syneos Health 92.3 3.22
FB Facebook 91.4 2.52
SPSC SPS Commerce 90.7 1.66
ABBV AbbVie 90.3 1.26
SPGI S&P Global 90 1.6

 

These reports suggest earnings are off to a great start this quarter. Companies have so far reported aggregate earnings 23.6% above expectations, according to FactSet. If the trend continues, then we’ll be looking at the highest surprise percentage since FactSet began recording the metric in 2008.

Interestingly, amongst the megacap tech companies reporting this week, Facebook is the only one to make the list. Bespoke highlights its average day-after jump of 2.5%. Facebook reports quarterly earnings today after the closing bell.

Facebook’s average analysts’ price target was up approximately up 14% over Friday’s level on Tuesday, trading at $342.37 per share, feeding into potential longer-term upsides.

Shopify, the Canadian e-commerce company, has consistently been one of the fastest growing stocks for the past 3 years. Since 2018, Shopify shares have grown a massive 700%.

MasterCard is also a bit of a big hitter with a proven ability to come out above analysts’ expectations. The credit card firm beats predictions 93% of the time. MasterCard currently enjoys an 85% buy rating on Wall Street, reports FactSet, with the stock up 9% year-to-date.

Looking to small caps, some of those on Bespoke’s list as consistently punching above their weight, estimates-wise, include Office Properties Income Trust and TransUnion.

How you can invest in emerging markets

Emerging economies can offer investing and trading opportunities you may have missed. As such, you might want to consider investing in emerging markets to diversify your portfolio. Here’s how to do it.

Investing in emerging markets

What are emerging markets?

Emerging markets (EMs) are simply economies that are becoming more involved with the global market as their prosperity and GDP grows. They usually share, or are starting to show, characteristics common with developed economies.

That means they will have some liquidity in local debt and equity markets, increasing trade volumes and foreign direct investment, and internal development of domestic financial and regulatory institutions, and stock exchanges.

How are EMs different to developed markets?

While they are on track to reach the same levels of economic complexity as their developed peers, there are some differences that set emerging markets apart from their developed peers:

Characteristic Developed economy Emerging economy
Industrialisation Developed nations tend to have already heavily industrialised and have transferred into service-led economies. Emerging markets tend to rapidly expand their industrial base.
Growth Growth in developed economies is often slow but steady. Emerging economies’ GDP growth is usually higher-than-average.
Demographics Population growth has slowed in most developed markets while the middle class has been firmly established. GDP per capita tends to be high. Emerging markets usually have rapidly growing populations and a developing middle class, however GDP per capita is lower than the developed average.
Currency Developed market currencies are less volatile than their emerging counterparts and are easily exchangeable. Currencies in emerging markets are more volatile. Exchange rate mechanisms are being developed to discourage citizens from sending cash overseas and encouraging FDI.
Commodities Developed economies are not as vulnerable to swings in commodity prices. Many emerging markets are dependent on commodities for their economic prosperity, thus are susceptible to price swings.

 

One of the key takeaways here is rapid growth but high volatility. Take Russia for instance. Its economy is intrinsically linked to oil & gas.

40% of government revenues come from its hydrocarbons industries. While it has prepared measures to encourage financial investment, such as localisation deals for car manufacturers and oil & gas equipment producers, its economy is still highly susceptible to oil price volatility.

PwC forecasts the Emerging 7, i.e. the most prominent emerging economies, will experience annual average growth of around 3.5% between 2016 and 2050, well ahead of the G7’s forecasted growth of 1.6%.

Which countries are considered emerging markets?

Developing economies are found across the globe, but if you’re looking to invest in emerging markets, you may want to start with the Emerging 7. These are seven countries identified by PricewaterhouseCoopers in 2006 as future global economic powerhouses, as a counterpoint to the traditional Group of Seven (G7) economies that dominated the 20th century (US, UK, France, Germany, Canada, Japan & Italy).

The Emerging 7, and their current GDPs, are:

  • China – $14.9 trillion
  • India – $2.59 trillion
  • Russia – $1.72 trillion
  • Brazil – $1.36 trillion
  • Mexico – $1.32 trillion
  • Indonesia – $1.08 trillion
  • Turkey – $761.4 billion

Certainly, these countries grab the emerging economy headlines – especially China. Investors are increasingly looking at how to invest in China because it’s predicted that the country will overtake the US as the world’s preeminent economic power at some point this century.

How to invest in emerging markets

There are plenty of options open to invest and traders who are looking at investing in emerging economies.

As ever, it’s very important to do thorough research if you plan on trading and investing. Doing thorough analysis on stocks, emerging market ETFs, and so on will help you pick stocks or assets suitable for your investment or trading strategy.

Historically, returns from EM equities have been relatively low. According to JPMorgan, EM equity returns have only averaged +3.6% per year from 2010 to 2019. But 2020 was different.  The MSCI Emerging Markets Index outperformed the S&P 500 for the first time since 2017 (EM gained +18.5% versus the S&P 500’s +18.4%).

Past performance is not indicative of future results, but the above rise could be encouraging for investors looking to put capital into emerging economies.

So, how can you get involved? You may wish to invest in companies based in emerging markets. Taking South Korea as an example, Samsung and Hyundai are viable, internationally renowned large caps helping power the South Korean economy.

In China, Alibaba, Tencent, and Geely Motors are all tech-related stocks that have performed well over the past year.

Emerging markets investors may also use ETFs. Exchange traded funds group together stocks and assets into a single fund, giving investors exposure with lower risk.

On our Marketsx trading platform, for instance, we offer the Wisdom Tree Emerging Markets High Dividend ETF (DEM). This draws its constituents from a Wisdom Tree index that measures the performance of EM stocks that offer high dividend returns.

It is composed of mainly Russian and Chinese firms, including Rosneft and the Industrial Commercial Bank of China, but also includes other big hitters like Brazil’s Vale, one of the largest mining companies in the world, Taiwanese plastics giant Formosa Plastic Group.

You may also consider bonds. Bonds are fixed-income instruments representing a fixed amount of debt. They are most often issued by governments or corporations, paying regular interest payments until the loan the bond is drawn from is repaid.

There are several different varieties of bond, so you could potentially create a diverse portfolio of just bonds issued by governments of emerging economies. Bonds are generally considered a more secure investment than equities too.

Risks of investing in emerging markets

One important thing to remember is volatility is more likely in emerging economies than developed ones. Economic conditions may change more suddenly in an emerging market than a developed one, so bear that in mind when investing. You may end up losing more than you initially invested.

We spoke earlier about how emerging markets are often more susceptible to commodity price swings. Russia is a good case study here. In 2015, the oil price dropped significantly.

As mentioned earlier, Russia relies heavily on oil & gas for revenues and the performance of its hydrocarbons industry has major ramifications for its economy as a whole. During this time, the value of rouble effectively halved, making Russia less attractive for oil & gas investment and development for international firms.

It’s these type of market trends you have to fully consider when investing in emerging markets. However, the purpose of investing in emerging markets is to trade higher risk with potentially higher rewards.

If you are planning on investing in emerging markets, it’s a good idea to ensure you have a diverse portfolio of stocks and assets. You may wish to include an emerging market ETF, plus several stocks from one country, a mixture of stocks from one country and so on.

Diversifying your portfolio is way to help you mitigate risk. You’re aiming to lower the effects of under or negatively performing assets. Gains in one asset may help offset losses in another. An example diversified portfolio, based around EMs, might look something like this:

  • 20% developed economy stocks
  • 22% foreign stocks from emerging markets
  • 22% bonds from emerging markets
  • 22% bonds from developed markets
  • 9% commodities
  • 5% long-term investments

This example portfolio draws heavily on stocks from EMs, but it also balances that out with capital allocated to equities and bonds in developed markets. In theory, any losses caused by market volatility in emerging economies could be offset by steady performance from the developed economies.

Investing vs trading: what’s the difference?

Before investing in an emerging market, it’s important to know the difference between investing and trading as distinct practices.

The goal of investing is to gradually build wealth over an extended period of time through the buying and holding of a portfolio of stocks, baskets of stocks, mutual funds, bonds, and other investment instruments. You hold onto them in the hope they will grow in value over the long-term.

Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. Many trading services, such as ours, run using products like CFDs or spread betting.

Unlike investing, you do not own the underlying asset here. Instead, you are trading on its price movements. CFD trades use leverage, so you can get exposure to a stock or market for the fraction of the initial cost it would take to invest. However, because you are trading on margin, your losses can be increased too.

Both practices require you to mitigate risk as best you can. Trading and investing are risky and can result in capital loss. Always do your research and due diligence prior to committing any funds, and always ensure you can afford any losses you may occur.

CySEC (أوروبا)

  • يتم حفظ أموال العملاء في حسابات مصرفية منفصلة
  • تعويضات صندوق تعويضات المستثمر FSCS تصل إلى 20000 جنيه إسترليني
  • تغطية تأمينية بقيمة 1000000 يورو**
  • حماية الرصيد السلبي

المنتجات

  • CFD
  • تعاملات الأسهم
  • Quantranks

Markets.com، التي تتولى تشغيلها شركة Safecap للاستثمارات المحدودة ("Safecap”) مرخصة من قبل مفوضية قبرص للسندات والتداول (CySec) بموجب الترخيص رقم 092/08 ومن قبل هيئة سلوكيات القطاع المالي ("FSCA") بموجب الترخيص رقم 43906.

FSC (العالمية)

  • يتم حفظ أموال العملاء في حسابات مصرفية منفصلة
  • التحقق الإلكتروني
  • حماية الرصيد السلبي
  • تغطية تأمينية بقيمة 1000000 $**

المنتجات

  • CFD

Markets.com، التي تتولى تشغيلها Finalto (جزر العذراء البريطانية) ذ.م.م. المحدودة ("Finalto BVI”) مرخصة من قبل لجنة الخدمات المالية في جزر العذراء البريطانية ("FSC") بموجب الترخيص رقم SIBA/L/14/1067.

FCA (المملكة المتحدة)

  • يتم حفظ أموال العملاء في حسابات مصرفية منفصلة
  • تعويضات صندوق تعويضات الخدمات المالية تصل إلى 85000 جنيه إسترليني *بحسب المعايير والأهلية
  • تغطية تأمينية بقيمة 1000000 £**
  • حماية الرصيد السلبي

المنتجات

  • CFD
  • المراهنة على الهامش

Markets.com، التي تتولى تشغيلها Finalto Trading Limited مرخصة من قبل هيئة السلوك المالي ("FCA") بموجب الترخيص رقم 607305.

ASIC (أستراليا)

  • يتم حفظ أموال العملاء في حسابات مصرفية منفصلة
  • التحقق الإلكتروني
  • حماية الرصيد السلبي
  • تغطية تأمينية بقيمة 1000000$**

المنتجات

  • CFD

Markets.com، التي تتولى تشغيلها Finalto (Australia) Pty Limited تحمل ترخيص هيئة الخدمات المالية الأسترالية رقم 424008، وهي مرخصة لتقديم الخدمات المالية من قبل هيئة الأوراق المالية والاستثمار الأسترالية ("ASIC”).

سيؤدي تحديد إحدى هذه الجهات التنظيمية إلى عرض المعلومات المتوافقة على نطاق الموقع الإلكتروني بأكمله. إذا أردت عرض معلومات عن جهة تنظيمية أخرى، الرجاء تحديدها. لمزيد من المعلومات، انقر هنا.

**تنطبق الأحكام والشروط. شاهد السياسة الكاملة لمزيد من المعلومات.

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