International markets went into overdrive in October and November 2019, repeatedly setting new records. For some investors, this is a worrying sign: have major stocks exhausted their energy? And given all the trade war concerns and recession risks, is it still a good choice to invest in indices? The answer is yes – if you pick carefully, you can definitely use the current situation to your advantage. In this article, we’ll provide suggestions as to which indices to invest in this December. FTSE100 FTSE100 (Financial Times Stock Exchange) tracks the 100 companies with the highest capitalisation traded on the London Stock Exchange. The list includes such giants as HSBC, British American Tobacco, GlaxoSmithKline, Royal Dutch Shell and BP. “Footsie” has been through a very rough patch due to the uncertainty surrounding Brexit and high volatility of the British pound. For comparison: while DAX 30 is up 24 per cent YTD, FTSE100 has grown by less than 7 per cent.
However, things are finally looking up for the index.
First of all, it looks as if the matter of Brexit will finally be resolved by the January 31 deadline. And with the stress of the general election also over, UK markets will probably breathe a sigh of relief and celebrate the return of stability with a rebound.
Second, the 2020 growth forecasts for both the UK (1.5 per cent) and the world (3.5 per cent) are reassuring enough. Overall, the underperforming FTSE100 seems like a good buying opportunity right now.
It’s hard to go wrong when investing in S&P500, though the leading analysts are cautious in their 2020 forecasts. The index has grown by 23 per cent so far in 2019, with the stock markets reaching all-time highs in November. However, even the most optimistic predictions for the upcoming year don’t go beyond 10 per cent.
Still, S&P500 remains a solid investment opportunity. US growth prospects for 2020 look good and profit margins will likely increase. At the same time, international trade relations will be the decisive factor for the index – and here, too, there are reassuring signs. Despite Trump’s harsh statements, the US and China are moving ever closer to signing a deal. Any progress on the US-China tariff talks will boost investors’ confidence – and this can happen very soon.
The Tokyo Stock Exchange index showed impressive growth in the second half of 2019, rising by 16 per cent between August and November. This is despite the current economic slowdown in Japan and trade concerns.
With Facebook and Microsoft growing by 50 per cent and Apple by 70 per cent in 2019, it can be tempting to keep investing in growth stocks. However, many analysts believe that tech stocks have already used up most of their potential. If the uncertainty around tariffs and the US presidential election persists, overpriced tech stocks can sustain more damage, with market players switching to value.
If your general outlook on 2020 isn’t too optimistic, you might want to invest in value rather than growth. Here S&P500 Value offers a good selection, with constituents such as Metlife, Baker Hughes and Ford Motor Company. This puts it among the top indices in which to invest this December for investors who prefer to err on the side of caution. Indeed, if the US and China sign a trade agreement soon, value stocks will gain most. They will also benefit from rate cuts more than growth stocks.
It may surprise you to see a Chinese stock index among the top indices to buy into this winter. However, now could be the best moment to invest in Chinese stocks. True, economic growth has been very sluggish and the dark shadow of Trump’s tariffs still looms large. On the other hand, the Chinese economy is still expected to grow by 5.7 per cent in 2020 and the ongoing restructuring is already yielding results. Plus, with the 5G revolution on the horizon and licences for US companies to work with Huawei coming soon, Chinese tech stocks could deliver very good margins in the next couple of years.
Just as importantly, since the consolidation has been going on for years, many investors have left the market. With the current low valuations, Chinese indices look like an attractive opportunity. You’ll be in good company: UBS, for one, holds very large positions in Chinese stocks.
Most experts agree that the current stock market highs cannot be sustained indefinitely. However, we can also look forward to some positive events, such as a US-China trade deal and the resolution of the Brexit drama. 2020 may not deliver new price records, but it can definitely bring good returns to those investors who are willing to study the fundamentals and wait as long as needed