Price developments on stock markets seem to run contrary to current fundamental data in the real economy, where we see the biggest slump ever in 2020. It cannot be denied that the first half of 2020 will make history — but what can we expect for the second? What developments are likely and which asset classes might benefit in Q3/Q4 2020?
As the impact of the coronavirus pandemic unfolds across industries, finance markets are responding in unpredicted ways — with winners and losers. Although results have been mixed, we expect the effects to become more pronounced in Q3/Q4 2020.
A good example of the mixed messages the markets are currently experiencing is the FinTech space. Of course, established players like PayPal and Adyen have profited, which is likely to be reflected in investment behavior. But many financiers have held their budgets back and waited to see how existing portfolios would develop instead of investing in new companies. Still, the overall stance among FinTechs is decidedly bullish, with almost 90% of firms in a study by the online platform netzwoche stating that staff can easily work from home and 83% foreseeing opportunities from the coronavirus pandemic crisis (netzwoche May 2020). FinTechs clearly expect to emerge from the crisis in very good shape, yet the investment community remains skeptical.
Limited partner (LP) funds such as pension funds or insurance companies are also distributing their cash injections more hesitantly. While they might have held out the prospect of €100m before the crisis, 40 million will have to suffice for now.
This has led to a tendency towards illiquid asset classes, but liquid asset classes will have a comeback, according to a survey (boerse.de May 2020). Not surprisingly, with industries seeking to enable remote work and online collaboration, companies offering digitalization solutions are attracting heightened investor attention.
No discussion of asset developments in times of crisis would be complete without a look at gold, the traditional safe haven. An article on the German online investor platform Aktien Check predicts that inflation triggered by the various stimulus packages introduced in countries around the world will attract investors away from gold and drive its price down (Aktien Check June 2020). The article foresees the price of gold, trading at over US$ 1,700 per ounce at time of writing, to hit US$ 1,600 by the end of the year.
The Role of Crypto
A further asset class to keep in mind is crypto assets and decentralized finance. In a recent article by Philipp Sandner, Jonas Gross and Marcel Kaiser of the Frankfurt School Blockchain Center (FSBC) in the German financial publication Capital, the authors forecast a strong future for digital assets, with Bitcoin leading the pack (Capital June 2020).
This prediction is backed by our internal research. Innovative products based, for example, on gold or Bitcoin — that is, inflation-resistant assets — will with all likelihood gain in importance in the future.
The age of digital assets is just dawning. Comparing the initial coin offering (ICOs) and security token offering (STO) markets has often led to misinterpretations in the past. Further, the unregulated sector cannot be compared with the regulated capital market or investment services sector. However, there is certainly some movement in the security token market. We also see a variety of banks and financial intermediaries with increasing interest in digital assets, such as the implementation of custody or sales and distribution solutions. Still, regulatory hurdles remain to be overcome before digital assets can realize their full potential. Liechtenstein is already much further along with the Blockchain Act, which came into force at the beginning of this year. There has been a lot of movement in Germany recently, among other things through the new regulation in connection with a license to operate a crypto-custody business. So much lies in the hands of the regulators and, despite all the uncertainties, I am convinced that the security token market is in the first stages of a promising development.
Netzwoche. 2020. “Fintech-Firmen sehen sich als Krisengewinner.” Retrieved from https://www.netzwoche.ch/news/2020-05-26/fintech-firmen-sehen-sich-als-krisengewinner
Börse.de. 2020. “Silbersteif am Horizont: Deutsche Institutionelle wollen wieder in chancenreichere Assetklassen investieren”. Retrieved from https://www.boerse.de/nachrichten/Silberstreif-am-Horizont-Deutsche-Institutionelle-wollen-wieder-in-chancenreichere-Assetklassen-investieren/27876422
Aktien Check. 2020. “Gold: Einbruch bis Jahresende”. Retrieved from http://www.aktiencheck.de/exklusiv/Artikel-Gold_Einbruch_bis_Jahresende-11451897
Capital. 2020. “Blockchain, DLT und Crypto Assets: Trends für 2020”. Retrieved from https://www.capital.de/wirtschaft-politik/blockchain-dlt-und-crypto-assets-trends-fuer-2020
Originally published on www.area2invest.com on June 23th 2020.