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Investments in Times of Global Political Tensions and Trade Wars

By January 28, 2020 No Comments

All that glitters is not gold 

Gold is known to be one of the most reliable and secure investment asset classes throughout history, consequence of its scarcity and its power to store value. In fact, the value of gold has increased by 20% during 2019 alone.[1] This precious metal has always been seen as a “safe haven” for investors, a way of protecting their assets in times of uncertainty and crisis.  

It is not strange to observe that gold has been in high demand lately, following the threats of new tariffs imposed on “trade wars”, mainly by the United States and China. The latest political unrest between Iran and the U.S. has for sure brought up an extra notch in the ongoing level of global economic instability. 

Investing in the Brazilian stock market, on the other hand, is proving to be an even more  option when one looks at its performance during 2019, when the stock market went over 100.000 points, accumulating historical highs and drawing the attention of global investors. While gold increased by 20%, the Ibovespa had an increase of approximately 28.42% in 2019, closing the year with 115,645.34 points and an accumulated growth of 31.58% for the period, the most considerable annual variation since 2016. [2] 

2019 was the year of the Brazilian stock market, propelled mainly by the maintenance of the Selic rate (Brazil’s interest rate) below 7% per year (which also lowers the yield on fixedincome investments) and the national pension reform.[3] 

The turbulence observed abroad throughout 2019 may have frightened other markets, but it did not lower expectations for the performance of the Ibovespa (main index of the Brazilian stock exchange) in 2020. The scenario is optimistic for 2020, and analysts estimate a rise of up to 38% of the index from current levels, potentially reaching 150,000 points. Among more conservative forecasts, the Ibovespa advance should be of at least 10% by yearend, lifting the index above 125,000 points.[4] 

Experts go on to say that the progress of Brazilian companies in the third quarter of last year and the improvement of some economic indicators, such as retail numbers, support the favorable outlook for further stock gains. 

As history tells us, the fear of the global economic slowdown has led investors to look for safer assets, such as gold. Nevertheless, it should be noted by companies and other global investors, at least for the ones not already looking at Brazil, that local assets will continue to be positive along 2020, despite the political uncertainty in the Middle East and the trade war between the United States and China.  

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