Spoilt for choice, also with shares

Monday, 04. October 2021

“If you have a choice, you are spoilt for choice! This is true not only for the Bundestag elections, but also for choosing the “right” shares at the “right” time. After the Bundestag elections on 26 September, exploratory talks will now begin between the SPD, the Greens and the FDP, what is called a traffic light coalition, but also at the same time between the CDU, the Greens and the FDP, what is called a “Jamaica coalition”. This can certainly be seen as an important setting of the course – also for the stock exchange. At the same time, in the USA the Democrats are negotiating with the Republicans about the size of the investment programme, but also about raising the debt ceiling. If there is no agreement and then a new “shutdown”, i.e. a temporary default, the world’s stock markets would fall.

The biggest beneficiary of the recent sharp rise in oil and gas prices is Russia, and in particular the gas giant Gazprom, whose share price has more than doubled in just one year. As a result, the Moscow stock exchange was also able to outperform. But also 11 other Eastern European stock exchanges clearly outperformed the DAX and S&P index. It is regrettable that the Eastern European stock exchanges are still very much neglected in the media and that even bank advisors hardly have the know-how to give competent advice here. Andres Männicke also gives his assessments of future opportunities in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 190 at www.YouTube.com .

What does a traffic light coalition mean for the stock market?

On 26 September, the German population was “spoilt for choice” in the Bundestag elections. It was clear that after the many mishaps of the last government, the population was very dissatisfied, especially with the CDU’s candidate for chancellor, Armin Laschet, who is still in a low mood.  This time, the election results even more or less matched the election forecasts: big losses for the CDU/CSU, but gains for the SPD, the Greens and the FDP. But the Greens had also hoped for a better election result. The only possibility now is a three-party coalition to form a government.

Everything will become more expensive, especially electricity

After the election results, a “traffic light coalition” is now theoretically possible, but also a “Jamaica coalition” Even if the traffic light coalition is (still) favoured by the majority of the population, everyone should realise the consequences – also on the stock market. With the traffic light, everything will be much more expensive in the next and Germany as an investment location is at risk. The envisaged energy turnaround may turn into an energy crisis in Germany, because much of the Green Party is just wishful thinking.

Certainly, climate change is and will remain an important issue worldwide, which is of particular concern to the young population. But the measures to combat climate change must also be affordable and must not endanger Germany as an investment location through excessively high electricity prices, because this also puts international competitiveness at stake, which is already weakening. Quite a few energy experts even expect a blackout in individual cities if there is a sharp temporary increase in electricity demand. Many things have not been thought through to the end by the Greens, including the electricity demand for the desired 10 million e-cars. The next government’s tax policy, which must offer investment incentives, will also be important here. With rising inflation, many things will become more expensive and the population will be expected to pay a lot next year. Then the mood is likely to change again.

World stock markets are facing major challenges – but so are politicians!

Share prices have already fallen slightly in the last few days, but the true effects of the election results will only become apparent when the coalition agreements are clear. In any case, the influence of the Greens will make many things very expensive next year and the burdens on the population will be higher. How this will affect the stock markets also depends on other factors. In any case, the stock markets and economies will face great challenges next year, also in view of the new mega-debt, but so will the politicians with their bold election promises. Since the central banks will start “tapering”, i.e. reducing securities purchases, in the next few months, the monetary support on the stock markets will not be as strong as this year.

When will the central banks’ “drug policy” come to an end?

It is also unclear whether the currently strongly rising inflation will only be a temporary problem, as the central banks are now suggesting, or whether inflation will remain sustainably high next year. At the moment, it is mainly the sharp rise in energy prices that is causing higher inflation. However, the central bank’s “drug policy” is also causing asset inflation and thus the formation of bubbles in equities, bonds and real estate. It remains to be seen whether the insolvency of the Chinese real estate developer Evergrande will already burst the real estate bubble in China.

Will there be a “shutdown” in the USA?

The next few weeks will also be exciting in the USA, where the Democrats want to pass a mega-investment programme – and thus also higher debts, but the Republicans are opposed to this. It could be that the increase in the debt ceiling in the USA will be blocked by the Republicans, which could then lead to a temporary default and a budget freeze, the new German “shutdown”. This could also unsettle the stock markets worldwide in the near future, Joe Biden, who has just received his first booster shot (i.e. third shot), is already in the process of significantly cutting his investment programme for the next few years. Whether his plan to raise corporate taxes will go through is also not yet clear.

Corona wave is coming – so what?

Equally significant, however, is whether there will be a new 4th Corona wave in the winter, which is now already being hinted at in some countries where the vaccination rate is very low, such as Russia, Belarus and Romania with only about 30 percent. Lithuania, Romania and Belarus, for example, have already been declared a new high-risk area due to strongly rising incidences. In Russia, a new record number of 887 Corona deaths per day were recently counted. Russia also has a vaccination rate of only 30 percent.

New lockdowns are not to be expected because of this, but stricter measures are. In contrast, other countries such as Great Britain, Denmark, Sweden and Chile have already lifted all Corona measures. In Germany, even in Bavaria, clubs have now been reopened for the first time, but only under the 2G rule. However, the problem remains worldwide that the supply chains no longer function as before, which can even lead to a production stop in some cases, e.g. in the automotive sector.

World stock markets fell, but so did gold and silver

The stock markets have already reacted with price losses in recent days. Last week, for example, the DAX fell from 15,700 to 15,000 index points at the low after the Bundestag elections, now recovered to over 15,250 index points. This still means a gain of 10.42 per cent since the beginning of the year. At below 14,800 index points, there could be a sharper correction in October.

After reaching a new all-time high on 6 September 2021, the American S&P 500 Index fell from 4540 to 4345 index points, which now means a gain of “only” 17.74 percent after more than 21 percent before. It still outperforms the NASDAQ index with a plus of 14.71 percent.  Gold has not yet been able to benefit from the uncertainties on the world stock exchanges and the relatively high inflation in the last few weeks. Silver has also fallen sharply in recent weeks to 22.5 US dollars per ounce, which is also close to the low for the year.

Moscow stock exchange a clear outperformer

However, the Russian RTS index remains the clear outperformer with a plus of 24.33 percent in US dollars since the beginning of the year. The RDX index, an artificial product of the Vienna Stock Exchange for Russian shares, rose even more, by over 42 percent in euros, with oil and gas shares in particular benefiting from the strong increase in oil and gas prices. The price of crude oil recently rose to 79.21 US dollars/barrel, an increase of over 80 percent in one year. However, gas prices rose even more strongly, from which the Russian gas giant Gazprom again profited in particular with a new annual high of over € 8.6. The share price rose by 134 percent in 1 year and by 70 percent in the last 3 months. The Nordic pipeline has now been completed. However, Gazprom are now waiting for technical and political certification and approval of the operating permit, which could now become a “political issue” with the Green in the bunch. The rouble also rose to a new annual high of 84.71 EUR/RUB, as the rouble is rolling again.

Gazprom with new annual high

Gazprom was already recommended as “Stock of the Month” in the monthly stock market letter EAST STOCK TRENDS (EST) 1 year ago, but then again in March this year, which has already paid off for EST readers with a price increase of over 70 percent. Kazatomprom, the world’s largest uranium producer from Kazakhstan, performed no less badly due to the strong increase in uranium prices. Despite a doubling of the share price, Kazatomprom is presented in detail in the new September issue as “Stock of the Month”.

Again, 12 stock exchanges from Eastern Europe as outperformers, but hardly any of them are included!

Ab er not only individual shares, but also the indices of the stock exchanges in Eastern Europe show a far above-average performance: 12 stock exchanges from Eastern Europe were among the 30 best-performing stock exchanges in the world by 17 September 2021. The best performing stock exchanges so far were those from Kazakhstan (+67.6%), followed by Estonia (+50.4%), Russia (+37.5%), the Czech Republic (+37.0%), Ukraine (+33.5%), Bosnia (+30.6%), Slovenia (+30.3%), Bulgaria (+27.5%), Romania (+25.9%), Hungary (+25.3%), Lithuania (+24.0%) and Poland (+19.8%). In red 12 Eastern European stock exchanges, all of which performed better than the DAX (+13.2%) and the DJI (+20%) until 17 September! However, since the stock markets of Eastern Europe are still treated very stepmotherly in the Western media, hardly any German investors are part of this super performance.

First inform, then invest

Inform yourself now also in detail about the background and the development of the Ukraine/Russia crisis but also the future recovery potential of the undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Romania and Ukraine, with the respective stock indices all up in 2019.  For example, some Ukrainian agricultural stocks have already more than doubled in price since 2016, and in 2018 the PFTS index was already up over 70 per cent again. Kazakhstan stocks were among the top performers in the world in 2017 (+56 per cent), but not in 2018 and not in 2019, but again in 2020/21.

In 2018, 10 stock markets from Eastern Europe were already among the best-performing stock markets in the world, all of which clearly outperformed the DAX and also the US stock market. In 2019, the Moscow Stock Exchange was once again the clear outperformer among all global stock markets, with a plus of over 46 percent in euro terms. But also the Bucharest Stock Exchange (Romania) already rose by over 32 percent in 2019. The stock markets in Southeast Europe and also in the Baltic countries remained very stable in the plus (Croatia +13 percent). Last year, 6 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world and this year even 12 stock exchanges from Eastern Europe until the end of September 2021. After the Corona crash, it is still worthwhile to look beyond the horizon to Eastern Europe.

Order now a trial subscription (3 issues by e-mail for only 15 €) of the monthly stock exchange letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as with a lot of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, there under Stock Exchange Letter.

The last EST was published on 30 September 2021, and the old EST model portfolios have already made strong gains in 2019. The “Stock of the Month” from December 2019 TCR Group already rose by 200 percent and the “Stock of the Month” from March 2021 Gazprom already by over 70 percent. Russian gold shares, on the other hand, fell a little in price due to the fall in the price of gold. Nevertheless, the “gold sample portfolio” has almost doubled in value since the end of 2018. The shares listed there all still have potential as soon as the gold price picks up again. The “dividend pattern portfolio” with Gazprom and Kazatomprom in the boat has already risen by 58 percent since the end of 2018.

The relatively new December 2019 portfolio with turnaround candidates rose by 42 per cent.  The December 2020 “Stock of the Month” TCR Group – a fast-growing fintech bank from Russia – already rose over 186 percent in 7 months. In Kazakhstan, the new IPO Kaspi.kz, a fast-growing fintech company from Kazakhstan, which was extensively featured in EST in April, is making a splash. The share has already risen by 40 percent since then. The motto therefore remains: Go East!

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EST Stock market letter

The stock exchanges of Central and Eastern Europe have been among the top performers among the world’s stock exchanges since 1998. In recent years in particular, many CEE stock exchanges have performed far better than the established Western stock exchanges. In 2019, for example, the Moscow Stock Exchange not only clearly outperformed the DAX and DJI, but also ranked among the 30 best-performing stock exchanges in the world.

Many investors have so far criminally neglected the CEE stock exchanges. Yet the selection of promising stocks is growing. Eastern Europe still has its future ahead of it.

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