Abu Dhabi, UAETuesday 1 December 2020

Three ways to invest $10,000 in the next three months

Financial experts suggest investors consider shares in US digital companies, emerging Asian equities and UK stocks

An investor walks past a screen showing stock market figures at a securities company in Hangzhou, China. Fund managers increasingly prefer Asian stocks as US markets become more volatile ahead of the elections. AFP
An investor walks past a screen showing stock market figures at a securities company in Hangzhou, China. Fund managers increasingly prefer Asian stocks as US markets become more volatile ahead of the elections. AFP

Total deaths from Covid-19 may have topped a million and many countries face a second lockdown, but that hasn’t stopped global share prices flying to new highs, led by the US.

All that central bank stimulus is doing its work by sustaining asset prices, but this leaves investors in a tricky position. Pessimists will be reluctant to invest right now, fearing that stock markets are being sustained only by near-zero interest rates and money printing, and a second crash could be just around the corner.

Optimists will be actively shopping for buying opportunities, hoping to hunt down bargains before we get a vaccine and the recovery kicks in.

If you are looking to invest $10,000 over the next quarter, here are three investment ideas to consider right now. The first looks beyond US tech giants such as Apple and Amazon to the next wave of digital winners, the second is a bet that Asian countries such as Singapore and China will spearhead the post-coronavirus recovery, while the third is an outright gamble, as it relies on British Prime Minister Boris Johnson averting a combined Brexit and Covid-19 meltdown this winter.

US digital companies

US stock markets are booming, with the S&P 500 up 50 per cent from its March lows, as investors ride out the pandemic by piling into technology and healthcare stocks.

Vijay Valecha, chief investment officer at Century Financial, says the US looks expensive, making it challenging to find exciting opportunities, but not impossible. “Some US growth stocks still offer good value, if you know where to look,” he says.

While streaming service Netflix and gaming technology firm Nvidia have benefited from the lockdown with a captive audience at home, Mr Valecha says other potential beneficiaries have been overlooked.

Some US growth stocks still offer good value, if you know where to look

Vijay Valecha, Century Financial

Content delivery networks (CDNs) speed up video, music, games and movie download times by running a global network of web servers that store digital content locally, and offer opportunities for investors brave enough to buy individual stocks.

Mr Valecha tips CDN provider Limelight Networks, a relatively small concern with a $700 million market cap, but whose share price has leapt by 92 per cent in the past year, according to figures from Bloomberg.

While past performance is no guide to future returns, Mr Valecha is optimistic. “Limelight focuses on video services and supports the streaming of Disney Plus and Peacock platforms of Comcast International. Media streaming is just getting started and Limelight should benefit.”

He also picks out CDN provider Fastly, a larger operator with a market cap of $9.55 billion, whose services are used by Amazon, Pinterest, TikTok and Etsy. Its share price has more than tripled over the past year, rising 319 per cent, according to Bloomberg. These are risky plays and there are no guarantees that this manic rate of growth will continue. It could go into reverse.

Mr Valecha says digital advertising is on the up as people spend more time at home, and tips US advertising platform Magnite, formed in April by the merger between Rubicon Project and Telaria. “Magnite automates the purchase and sale of digital advertising inventory for buyers and sellers. Its core market, smart TVs, are expected to grow steadily.”

For those who have had their fill of tech stocks, Mr Valecha picks out what he calls a more “esoteric” opportunity in the US pet insurance market. Trupanion provides medical insurance for cats and dogs and has posted rapid growth in what is normally a slow moving industry.

He says that less than one in 10 pet owners in the US have insurance “and with almost 85 million households having pets, the potential for growth is huge”, he says.

Trupanion has a market cap of $2.77bn and is up 212 per cent over 12 months, Bloomberg figures show. Again, though, this type of growth is hard to maintain.

Emerging Asia

The coronavirus may have first emerged in China, but Asia has weathered the pandemic better than most.

South Korea has contained the virus, while fast action from Singapore and Taiwan averted a full lockdown.

This puts the region in a strong position as Europe and the US struggle to contain the outbreak without destroying their economies.

Asia’s relative strength is likely to be played out in tech stocks

Luca Paolini, Pictet Asset Management

Luca Paolini, chief strategist at Pictet Asset Management, expects emerging Asian equities to outperform, with China set to be the star performer. “Asia’s relative strength is likely to be played out in tech stocks, where the region looks ready to take over leadership from the US.”

Mr Paolini adds: “Chinese technology, consumer staples and healthcare companies are likely to be the best performing sectors, as they are relatively well capitalised and good at generating cash.”

Mark Shirreff Matthews, head of research Asia at Julius Baer, says Chinese consumer sentiment is on the up again. “China is well-advanced psychologically from the rest of the world, with the coronavirus almost entirely eradicated. People who wear masks are outnumbered by those not wearing them, and hand-shaking is the norm again.”

The country began its eight-day Golden Week holiday on October 1, and Mr Matthews says this will boost travel agents, airports, domestic-focused airlines and hotels. “To invest in a more sustainable recovery in Chinese consumption, investors should focus on durables, high-end staples, restaurants and movies.”

Exchange-traded funds such as iShares MSCI China A ETF, SPDR S&P China ETF, Global X MSCI China Consumer Disc ETF or iShares MSCI Hong Kong ETF could help you play a rebounding China.

Brexit Britain

Global investors have been shunning the UK stock market ever since the EU referendum in June 2016. That has cast a shadow over the economy for four and a half years, and it lengthened in September when British Prime Minister Boris Johnson suddenly threatened to rewrite the Brexit withdrawal agreement.

The EU replied with legal threats, sending both the UK stock market and sterling plummeting, as fears grew that Britain would separate from its largest trading partner without a deal on December 31.

Rupert Thompson, chief investment officer at UK wealth adviser Kingswood, says this is crunch time as any deal needs to be largely finalised by the end of October, but the outlook has suddenly brightened. “Prospects for a deal look rather better than a couple of weeks ago.”

He says Mr Johnson has a strong incentive to avoid a no-deal Brexit. “With significant Covid-19 restrictions and the government already under attack for incompetence, he may not wish to take the flack for inflicting yet more chaos onto the economy.”

UK shares have endured another rotten year, underperforming global markets by “an unimpressive” 24 per cent, says Mr Thompson. “The UK weighting in the global equity index has now shrunk to all of 4 per cent.”

As well as Brexit and Covid-19, the benchmark FTSE 100 index has been hit by its plentiful exposure to oil and gas stocks, and the banking industry, both of which have been slammed by the pandemic.

Darius McDermott, managing director of Chelsea Financial Services, says global investors are not the only ones to shun the UK. “Everyone seems to hate UK equities – even us Brits.”

In 2005, British investors held 39 per cent of their assets in UK equity funds. Today, that figure stands at just 14 per cent.

This means the UK stock market is cheap, relative to more successful rivals, and could offer a buying opportunity. Mr McDermott says: “If we get a positive Brexit deal and a Covid vaccine, we could see a bounce in this unloved stock market.”

If we get a positive Brexit deal and a Covid vaccine, we could see a bounce in this unloved stock market

Darius McDermott, Chelsea Financial Services

The easiest way to access a UK stock market recovery would be to buy a simple, low-cost tracker such as iShares Core FTSE 100 UCITS ETF, the Vanguard FTSE 250 UCITS ETF, which invests in medium-sized countries or the SPDR FTSE UK All-Share UCITS ETF to capture the entire index of around 900 quoted stocks.

The value of your holdings would be boosted if the pound rebounds on a deal, but remember it hasn’t been done yet. Expect last-minute twists, turns and political grandstanding. Investing in the UK could go either way right now.

Updated: October 4, 2020 05:08 PM

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