The scenarios described in my market reports for the year 2019 have been confirmed to date.: China and the US must come together because of their interdependence, even though they are fighting with hard bandages. The likelihood of a disorderly Brexit is low as there is parliamentary democracy in the UK that is holding back the intentions of Prime Minister Boris Johnson. Interest rates remain very low, making stock dividends attractive compared to fixed term deposits, and central banks remain expansive due to the slowing economy and lack of inflation, and have even cut interest rates. These factors have led stock markets to perform very well this year despite many uncertainties and increased volatility.
The MSCI World Index in EUR has risen 23.57 percent to October 31 and the DAX has gained 20.69 percent. The individual wealth management of Nowinta, with an equity stake of 50 to 60 percent, also achieved an excellent net yield of 14.90 percent.
The question many people are asking now is of course, how are things going to continue in the coming months and especially in 2020? Already in the year 2012 and also this year we slipped past a slight recession in Germany. Particularly in the industrial sector, we have seen a sharp declines in many other countries around the world, which has been compensated by the increasingly important service sector. It is even possible that some European countries, thanks to record-low interest rates, will launch fiscal programs to boost the weakening economy.
However, investors should slowly prepare for a global downturn that will come sometime in the next few years. We recommend to hedge risk systematically by means of a large diversification across all asset classes. The Nowinta investment strategy starts right there. With global diversification based on GDP figures and investing via Exchange Traded Funds (ETFs), our clients are invested in approximately 2,500 companies worldwide. With a possible correction on the stock exchanges one is well secured with this diversification and can continue to sleep well.
Our above mentioned balanced strategy also has with its exposure to Cash and Bonds the necessary stability factor and risk buffer for a correction. The correction will come at some point, but it should not worry us too much. If we assume that, in simplified terms, the world economy grows by about 3 per cent annually and inflation of 2 per cent is added, this results in an expansion of the gross domestic product of 5 per cent. This is the basis for future earnings growth and has been so in the past due to population growth and productivity gains, especially from emerging markets. To substantiate this, one has to look at indices like the Dax or the US S & P over the long run, and then find that equity investments have performed on average at 8 to 10 percent annually.
This means that despite a downturn in the economy and a correction in the stock market, the long-term trend of global economic growth is pointing upwards and we are therefore better invested in real assets rather than holding cash positions that lose in real terms year after year due to inflation.
For the coming year, we see positive momentum for the markets due to low interest rates, fairly high dividend yields and potential fiscal stimulus. It also gives the impression that we have skidded past a recession. In this environment we believe that we should continue to be and remain invested. In this way, investors can participate in global capital market returns and, in the event of a possible slump, the equity ratio can be increased by an anti-cyclical approach.
The above mentioned has been written by Mr. Heyden partner of Nowinta Investment Group, S.L.
The Nowinta financial group based in Aalen (Baden Württemberg) has been providing independent financial advice and individual asset management for almost 30 years. The Managing Director of Nowinta Spain, Tobias Heyden, comments in this newspaper at regular intervals on the development of financial markets.
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