THE MARKETS LIKE TO CLIMB THE WALL OF WORRY - XSpot Wealth
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Investment December 2021
Research
Issue_106
THE MARKETS LIKE TO
CLIMB THE WALL OF
WORRY
In this issue;
ECB: Inflation is expected to de-escalate in 2022 - page 4
How can an investor avoid investing in the wrong
companies? - page 6
Investment strategy for 2022 - page 7
ESG News - page 9
“Ηot Νews” of the week - page 10
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
THE MARKETS LIKE TO CLIMB THE
WALL OF WORRY
Volatility is the friend of the
unleveraged long-term investor. We
much prefer the bumpy road to higher
rates of return than a smoother rise to
more modest profits
Bill Ackman
Last week's closing brought volatility to particularly high levels and also escalated investor fears.
The current week run completely differently with volatility falling 43% from its highs, giving an
amazing session on Tuesday with the indices closing more than 2.0% higher and the Nasdaq over
3.0%. This session has been the best since last March.
It is a fact that since February 2020, there has been a significant change in the course
of the volatility index, which remains well above 15 and whenever there is reason to
increase volatility, the index jumps even 50% in a session.
Page 02
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
The losses recorded by the key indices were not corresponding with the VIX soar but
the fear provoked by such a rise as well as the pessimism that immediately over-
whelms the Media, contributes to significant portfolio restructuring. This is expected
to be a new regularity in the coming years.
Referring again to the above words of Bill Ackman, corrections are the oxygen of the markets, as
they increase future returns. It is better for the market to correct than to move upwards for a long
time but with indifferent returns, when in fact the performance of the S&P 500 itself is now
negative.
To provide a statistical proof of the above, statistical studies show that when the VIX is in the
range 30-40, then the average return of the S&P 500 for the next 12 months is about 15%, with
the degree of verification of this statistic being 82.4%.
Markets are expected to keep on climbing the wall of worry. And there may be many reasons
that worry investors, and this may be the most positive element that will lead to a continuation
of the upward movement. After all, stocks remain the best asset class in the long run for inves-
tors. And the table below simply emphatically confirms why stocks will continue to rise. Because
it is the only asset class that if we adjust it to inflation, it continues to give very high positive
returns, when they can no longer be granted by any other asset class.
REAL TOTAL RETURN BY ASSET CLASS
20% FROM 2010 TO 2021
15%
YTD 2021
10% 2010-2020
5%
0%
-5%
-10%
EQUITIES GOV’T BONDS CORP BONDS TIPS CASH
Page 03
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
This is an important fact to keep in mind for 2022. Another fact we have to
keep in mind for 2022 is the possibility that the Fed has made wrong
estimates for inflation under the pressure of the circumstances. This is
because other G4 central banks have different views on inflation.
ECB: INFLATION IS EXPECTED TO
DE-ESCALATE IN 2022
Τhe attitude of the ECB is typical and states that inflation is at these levels due to three
parameters that emerged due to the situation created by the pandemic. These parameters are
expected to be normalized by 2022 and inflation will be brought back to normal levels.
In our view, a significant part of the rise in inflation is due to the so-called demand shock, which
has already begun to normalize and this will lead to an improvement in inflation figures.
Friday's data will show whether inflation is close to a peak or if it has already
reached it. It is clear that the inflation announced for November will also affect
Jerome Powell's speech on December 15, at the last conference for 2021.
Page 04
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
What investors expect is a confirmation that the Fed will begin the normalization of
monetary policy gently and not aggressively. Given the volatility in stocks and
bonds in recent weeks, such an intervention is considered absolutely necessary.
NASDAQ: IPOs
KING
Technology may be a highly volatile industry, but it is the industry
that attracts the most investment capital, as those who typically
finance mainly start-ups say: "A successful company can make so
much profit, that even if another 20 fail, the losses will have been
covered and beyond".
In 2021, the Nasdaq has surpassed the NYSE, as total IPOs on the
Nasdaq reached $ 191.38 billion while on the NYSE they reached $
109.25 billion. The dot.com bubble made companies choose the
NYSE for many years for IPOs, but now something has changed. In
2021, 686 new companies entered the Nasdaq versus 265 that
entered the NYSE.
The Nasdaq stock market also selects the so-called SPACs, which aim
to merge with private companies, which in this way become listed,
avoiding the bureaucracy and high costs of traditional IPOs.
Page 05
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
HOW CAN AN INVESTOR AVOID INVESTING IN
THE WRONG COMPANIES?
The answer to this question is not simple, but at XSpot Wealth we have done the necessary work
and have taken all the appropriate decisions, so that the investor can see everything as simple as
possible. Because the right investment is the one that pays off in time following a normal course
without extremities. We believe that there are only two ways to avoid investing in the wrong
company.
01 Do not invest in a company, but in an ETF that includes tens, hundreds or even
thousands of shares.
02
Do not invest in ETFs that attract the spotlight with spectacular returns and are
targeted short term, but in ETFs of sectors with decades of existence.
We know that an investor is psychologically tested when he chooses to invest in stocks (via ETFs)
and sees that there is another ETF which records spectacular returns and which he reads about
every time he "surfs" the internet. Time has come to see that the stable over time returns lead to
at least the same result as an ETF that has recorded a spectacular performance for a year. And
most importantly: with tremendously lower risk.
Below is the Nasdaq ETF compared to ARKK and IPO. Two ETFs that choose to invest in start-ups
that often offer mere promises for the future.
Page 07
Σελίδα 06
XSpot Wealth Investment Research Team www.xspotwealth.com
INVESTMENT STRATEGY FOR 2022
We mention above that inflation usually leads to a rise in stocks as they offer a high positive
real return. The prevailing belief is that in an environment of high interest rates the
technology sector does not perform well. This is partly true, as it's the money-losing tech
companies that do not perform well and not the tech giants with ultra-strong turnovers and
cash reserves.
Another fact that is the leading hand for 2022 is that the Fed will find itself in a cycle of
tightening monetary policy. Summing up the last 10 tightening cycles of the Fed, the stocks
have a positive return which, two years after the first interest rate increase, reaches 40%. That
is, 100% higher return than the average annual return of the last 20 years.
Page 07
XSpot Wealth Investment Research Team www.xspotwealth.com
WEEKLY REPORT
issue_106
However, for the story to be valid this time as well, there must be some basic
assumptions. The first and most basic is to have a slow rise in interest rates.
This shows that the economy is growing and that rising interest rates are
coming as a natural development. For now, this is just an assumption, as the
Fed, while initially communicating it correctly, has resorted to very aggressive
rhetoric over the past month, which should not be confirmed.
Secondly, as in the past, this time too, the start of a cycle of rising interest rates finds some sectors
highly valuated. In our view, if interest rates rise slowly, this is not a problem because the
potentially high valuations are associated with 10 shares out of a total of 500 shares of the S&P
500. Based on the above, the aggressive portfolios of XSpot Wealth are thus composed and are
expected to be composed even more appropriately to achieve the desired dispersion and benefit
from the beginning of the interest rate rise cycle.
issue_106
ESG NEWS
CHINA: FALL IN NATURAL GAS PRICES DUE TO REDUCED
DEMAND
Since the beginning of November, there has been a decline in natural gas prices
in China and the reason is the mildest winter so far. Prices have fallen 28.9%
since the beginning of November, while industrial demand is lower as there is a
possibility that some factories will close for some time, in order to reduce severe
air pollution.
JAPAN: A STRONG MARKET FOR INVESTMENT BANKS
The strong demand for investments with ESG criteria from Japan, led Morgan
Stanley in the last three years to double its investment portfolio in the country.
MS manages $ 58 billion in ESG debt in Japan and is expected that ESG capital
will further rise in 2022.
SOLAR ROOFTOPS: TREMENDOUS GROWTH RATES IN
AMERICA
Solar energy systems in American homes are attracting strong investment
interest, dramatically increasing profits for both companies in the industry and
banks lending to households for this purpose. According to Bloomberg, 37
companies have invested $ 20 billion in this sector.
Page 09
XSpot Wealth Investment Research Team www.xspotwealth.comissue_106
“HOT NEWS” OF
THE WEEK
DIGITAL WORLD ACQUISITION (DWAC): UNDER EXAMINATION BY THE
REGULATORY AUTHORITIES
The big fluctuations continue for this SPAC, which a few weeks ago recorded a 1200% rally after
the announcement that it merged with the media group of the former American President,
Donald Trump. Regulators want to investigate whether there has been a breach of the law on
the way communications, negotiations and the sale of shares took place until the day the deal
was announced.
DOORDASH: “BATTLE” FOR EVEN FASTER DELIVERY OF ORDERS
The delivery sector is in full growth with companies trying to gain a share by inventing various
strategies and activating several services. With the competition being fierce in all the big cities
of the world, DoorDash, in order to manage to eliminate the share of smaller companies, decid-
ed to pilot a new model in which the customer will receive his order in less than 15 minutes (if
of course the order allows it).
NFTS: NOW AVAILABLE IN ETFS TOO…
The ability of ETFs to respond immediately to any new investment trend is unique and this gives
investors access to invest easily in any sector. The Defiance Digital Revolution ETF is the newest
thematic ETF that invests in companies that have at least 50% of their revenue from NFTs
related activities.
Page 10
XSpot Wealth Investment Research TeamInvestment
Research
CONTACT
+357 25 571 044
WWW.XSPOTWEALTH.COM
SPYROU KYPRIANOU 68, KATO POLEMEDIA, 4154 LIMASSOL, CYPRUS
FOLLOW US ON SOCIAL MEDIA FOR
MORE UPDATES
This document and the information thereon is the property of XSpot and may only be used for the purpose for which it is supplied. Reproduction of the
drawing or use of the information thereon, in whole or in part, is strictly prohibited without the express written permission of XSpot.
Risk Warning: When Investing, Your capital is at Risk. If you are not sure seek the advice of an independent financial advisor.
This document does not constitute and shall not be construed as a prospectus, advertisement, public offering, or placement of, nor a recommendation
to buy, sell, hold or solicit, any investment, security, other financial instrument or other product or service. This document is for general information only
and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction.
XSpot Wealth (EU) Ltd.* is authorised and regulated by the Cyprus Securities and Exchange Commission licence no. 235/14 and registered at BaFin
(Germany) under reference no. 141183 and at REGAFI (France) under reference no. 59120. XSpot Wealth (EU) Ltd. has its office at 68 Spyrou Kyprianou,
Kato Polemedia, 4154 Limassol, Cyprus.
*Previously X Spot Markets (EU) LtdYou can also read
