Five investment trends to watch in February

The year has got off to a busy start. Gold has had a comeback, while bitcoin bombed – and then bounced back.

According to SYZ Asset Management chief economist Adrien Pichoud, these are the five investment trends to look out for this month.

US twin deficit could make a comeback
US Congress’ recent tax reform vote is expected to trigger an increase in final domestic demand, which would ultimately have to be financed by foreign savings via a widening current account deficit. When this happened in the 1980s and in the 2000s, fiscal support was provided right after an economic recession, and was meant to accelerate the economic recovery. Today, the US economy is in the ninth year of its expansion cycle and at full employment. Whether this will make for a different outcome remains to be seen, said Pichoud. “However one should not be surprised to hear of the US twin deficit in the coming months,” he warned.

Oil price reaching equilibrium
World oil supply growth has slowed following the surge of 2014-15. Oil prices have been rising in 2017 even as inventories reduced. US inventories, which had almost doubled from 2015 to early 2017, declined. Pichoud said this could be the best indicator that the large imbalance between supply and demand at the root of the oil price collapse in 2014-2015 has been resolved. If so, oil prices should become less prone to big price shifts in the future.

Weak dollar adding shine to gold
Gold prices are likely to remain torn between a lower dollar and higher long-term real rates. “If you believe real rates will rise meaningfully, you should stay away from gold, but if you believe in the continuation of a weak dollar and a muted increase in real rates, gold could shine again,” said Pichoud.

Investors hail Zuma exit with rand boost
Investor sentiment towards South Africa turned positive with the resignation of President Zuma and election of Cyril Ramaphosa. Over the past three months, the rand has been among the best-performing emerging market currencies, appreciating by 19% mainly driven by the expectation for potential reforms following the leadership transition, coupled with the overall risk-on sentiment in the markets and the weaker US dollar. The South African economy recovered from recession, even if growth is still weak, and inflation rates receded. Investors are expecting the country will avoid another credit rating downgrade in March.

Why cryptocurrencies are crashing
In January most cryptocurrencies crashed. Bitcoin fell more than 60% from its top, Ethereum suffered a 50% loss, while Ripple took a dive and plunged more than 75% from its early January high. Various explanations were proffered for the cryptocurrency crash, among them fear of potential regulation in Asia, especially in Japan and South Korea. Korea talked about banning the trading of cryptocurrencies and shutting down exchanges, probably contributing to the sell-off. China indicated crypto-coin mining could be prohibited due to its intense use of power. The reality check for investors has been difficult.

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