5.07 - bad situation unveils good assets
With all the markets unceratinty there are still good areas.
Yesterday we had hope for the stabilization of situation in Chinese segment of the market. Yuan was gaining as a reaction to the stabilizing measures and stocks were mixed. But today we see the fall like we haven't seen in two years. That’s right. Right now, Chinese stocks are at the lowest level in two years and, judging by today's performance, the fall will continue well into tomorrow. But how to trade in this situation? Moreover, how to make predictions when trade war is always looming over our heads?
All of the major points in Chinese markets are down today along with yuan and if the situation is going to go on, that China is in serious trouble. When the country gets major devaluation and currency problems stick, major financial crisis comes and deprives people out of the jobs and well-being. And with economy as big as Chinese, that would surely reflect on the whole world.
With china having as much production facilities at it does and with so many people involved in making details for world technology companies it is very dangerous that the production sites just stop because of lack of financing. Take Apple. Virtually all of their products are made in China. Now, imagine that as many people get laid off that Apple can't meet their quota and issue as many devices as they plan. What will happen next? Low sales numbers, lack of investors' trust because of the low return rates and lots of other problems. And Apple is just the one company taken into consideration here. But there are hundreds of thousands of various companies that depend on Chinese productions all around the world.
The most major hit will be upon small businesses that can't really find substitute for Chinese parts because of their availability and low prices. We are not even going to start talking about the impacts it is going to cause for the big conglomerates.
So. It is our opinion that with the strong ties that the whole world has to Chinese economy (and not because it is the second biggest economy in the world, but because it provides us with a lot of goods) the Chinese simply must find a way to stabilize their currency. In case they don’t millions of people will suffer not only inside China, but outside of it as well.
With the trade tensions between the world giants there is no reason why the trading should stop, right? We think so! And there are a lot of people right now who do not understand what they can possibly trade in such situation and we think that we have an answer – commodities. Yes, right now the market all in the red zone, but in case there is a full-blown crisis, there will no assets as stable as raw commodities.
It is worth to note, that when we talk about commodities we don’t only mean oil and precious metals. We also talk about orange juice, sugar, cocoa, corn and livestock. All of them are going to be in demand no matter what. That is why support for this segment of the market is not going anywhere even with the crisis in the equities market. Look at oil. With all the turbulence with dollar and with uncertainty in relations between US and Russia it was only reacting to OPEC meeting and anticipation of output decision. Nothing else shook it up. That in our opinion means that commodities tend to react to uncertainty only.
Previous statement is also supported by the recent movements of this segment of the market. Red color was seen among almost all of the points in the beginning of the week when there was no certainty on yuan reaction. Now, when the currency is losing commodities have recovered and are looking much better. Green is the dominant color although oil is down today.
We can say that after all of the trade insults are expressed and there is some kind of agreement on tensions, commodities can surely be one of not many havens for traders to stick to. Stocks, indices and equites are way too dangerous right now. Plus, with commodities there is a lot of choice and always a possibility to change trading asset. Behavior of the market is also pretty easy to learn.
So, we think that the future of trading is behind commodities. The main thing is not to forget about commodities like coffee, corn and wheat.
- by Anna K.