European countries are taking steps to reopen the economy and social life. However, at the same time there are still new cases reported in China. CNN’s “Fear & Greed Index” clearly reflects the concerns of a second wave. The historic data from the Spanish flu is enhancing concerns and skeptical thinking. Back then, the second wave was much worse than the first. A second lockdown does not seem to be the solution, since people are already complaining in different regions of the world with some even organizing protest demonstrations. As of now, it is not clear as and when we will go back to a new normalcy. All of this fear and uncertainty has of course a strong impact on the financial markets. Our outlook is in line with the “Fear & Greed Index” and we expect a bumpy road might still be ahead. There are many concerning news coming out from different industries. For example, Boeing was not able to sell any commercial planes in April and saw orders for 108 planes canceled. Another example is Volkswagen who is forced to pause its production again because of a weak demand. In our view from an economic perspective, we are only at the beginning of the bad news cycle and expect more to come in the next weeks. We feel that at latest, the data provided in July and August about the first half year of 2020 will lead to another drop at the markets. We therefore see a sustainable recovery at the stock markets earliest in the second half of the year if not only at the beginning of 2021.
Equity markets recovered very fast this year. It reminded us of the V-shaped recovery we already saw in 2019 after the correction in the second half of 2018. However, opposed to 2019, stock markets are still negative year to date. The recovery is in our perspective not driven by an economic basis. Rather it is a consequence of the huge stimulus programs introduced by various governments and the money that was pumped into the market by national banks. While we feel that the rally in general is not sustainable, we see one specific industry that could show a sustainable recovery. This is the mining industry. With year to date performances of up to 60% so far, mining shares have still potential to grow further. Mining shares show a high volatility and it is important to us to stabilize the portfolio. We do that by adding some stable, low-volatility shares that still pay a decent dividend. Since much of this stability got lost during the current crisis, we are still working with stop losses that are set between 10% to 15% depending on the stock’s volatility. By differentiating, we are trying to avoid being stopped-out at the turning point. Lastly, we use the current circumstances to invest in companies that we feel will benefit from so-called megatrends. These megatrends cover developments that will define our future. Such themes are for instance future cities, sustainable energy and integrated mobility.
WHVP Webinar We are hosting our first webinar on June 2nd. We will be talking about how offshore asset management works and have all your questions answered about the set-up and process. Make sure to save your seat today: Register for Webinar here.
It did not get any easier to select bonds. Even with yields going up in some cases we now have to worry more about the solvency of the issuer. Our strategy from the beginning was to focus on investment grade bonds and this is paying out now. Nevertheless, at the time being it is very important to track the issuer’s condition closely and on a regular basis. As we already stated in our newsletter in March, there is another aspect we have to watch closely. This is the currencies in which we make the investments. Since it is difficult to find bonds with an appropriate yield, we started to broaden our range. A while back we started to include bonds in emerging market (EM) currencies too. We already have quite some experience with buying bonds in EM-currencies. However, the coronavirus and the low oil price led to the USD gaining quite some strength against EM-currencies. The current situation means the following to us. On one side, the investments made in EM-currencies last year suffered on the currency side. On the other side, the current situation shows an attractive evaluation of EM-Currencies which we have seen last in 2002. We feel that EM-currencies have the potential to gain strength against the USD again if the situation around Covid-19 calms down and the oil price stabilizes and gains some strength again. We therefore made the strategic decision to keep on looking for opportunities that are worthy to take a position in some EM-currencies for the years ahead.
The hottest topic next to the coronavirus was without a doubt the oil price. Who would have thought that you would ever get money to take oil no one else wants to have. Of course, in order to profit from this you would have to be able to storage the oil which is not possible for most, but nevertheless an extremely interesting development. Goldman Sachs stated in late April that oil storage could be maxed out in just three weeks, which would pretty much coincide with the expiration of the next WTI-future. We expect the volatility to stay as high for the months to come. Storages are filled and there is little need from the consumption side for oil because of the lockdown. Therefore, we feel that there might be another drop into negative territory for crude oil WTI when the next futures on Crude Oil WTI expires on May 19. However, this volatility brings new opportunities to the table. We feel that the consolidation that started in the oil industry will continue. The big companies will most likely survive and come out of this crisis strengthened. Coming to precious metals, we feel that the highs have not been reached yet. We have seen a high of USD 1746 per ounce this year. Since markets were recovering fast since their lows in March, gold is trading around USD 1700 per ounce. The gold price is struggling to break through the USD 1720 per ounce but has strong support at USD 1680 per ounce. Since we believe the markets will lose strength again due to the reasons mentioned above, we see no reason why gold should not break through the USD 1720 per ounce, and USD 1750 per ounce respectively. After silver lost quite some strength, the metal was able to slowly crawl back from its low at USD 11.71 per ounce to around USD 16.00 per ounce. We feel that silver has more potential to catch up with gold as soon as the industries start to reopen. As soon as that happens, the demand for silver will be rising again. It might take some time until we see the silver moving above the USD 18 per ounce where we see the next bigger resistance.
WHVP’s new Youtube Channel We are happy to announce the launch of our own Youtube channel. We provide a variety of videos about asset management, offshore banking and Switzerland as a financial center. We cut through the noice and bring you short, educational videos to help you better understand the world of finance. Make sure to check it out here:Link to Youtube Channel.
We are an independent Asset Manager, registered with the SEC in the U.S. and are located in Zurich. We are associated with several first-class private banks in Switzerland, Liechtenstein and Austria, which act as custodian banks for our client’s accounts. Learn More here.
