The global economy is on a knife edge. Although we appear to be putting the pandemic behind us, we haven’t reached full escape velocity yet.
New threats are emerging as supply chain hold-ups cause shortages, energy prices accelerate and central bankers try to convince themselves inflation and stagflation are only transitory risks.
Many are wondering whether the big US technology stocks such as Apple and Amazon can continue to repeat their thundering success or will be overtaken by the next generation of tech heroes.
If you are looking to invest $10,000 (Dh36,725) over the next quarter, here are three red-hot investment trends to consider.
The first will introduce you to the metaverse, the second will help you cash in on the next leg of the banking stock revival, while the third could heat up your portfolio if we get a cold winter.
While this may be an exciting time to buy into these sectors, as with any investment, you must consider the risks and rewards.
You should never invest in anything with the intention of holding for just three months. Although we believe these are good opportunities to buy now, the aim should be to hold for a minimum of five years and, ideally, a lot longer.
The metaverse
If you thought the metaverse was all about spandex-clad Marvel superheroes zapping villains, then think again. It’s a real investment opportunity waiting to be snapped up, says Vijay Valecha, chief investment officer at Century Financial in Dubai.
The metaverse is the internet’s next step, connecting virtual reality, augmented reality and extended reality with the real world to create a virtual ecosystem.
It should transform every business and give birth to countless new entrepreneurship opportunities, making it an exciting area to invest in, Mr Valecha says.
“Once the metaverse is fully developed, humans will be virtually present with others and can move between virtual spaces using avatars and other digital items. It is the next big thing after the internet,” Mr Valecha adds.
Bloomberg Intelligence recently projected the metaverse’s market size could hit a massive $800 billion as soon 2024, so how do you get a piece of the action?
Facebook is an easy way in, Mr Valecha says.
“Mark Zuckerberg would prefer the social networking giant to be known as a metaverse company. Facebook has an Oculus VR video gaming headset and recently launched its first smart glasses in partnership with Ray-Ban, which allow users to take photos, film videos, listen to music or make phone calls, letting them connect with friends, family and social media followers.”
Unify Software dominates the gaming sector, with 94 of the largest 100 game development studios using its engine, making it a top metaverse stock, Mr Valecha says.
He also tips 3D spatial mapping tools specialist Matterport. “It is a leading extract-transform-load tool that imports real-world physical items into the virtual world of the metaverse. Matterport is mapping the architectural world and one day users may be able to view any building, anywhere in the world,” Mr Valecha says.
chief investment officer, Century Financial
Buying individual stocks is always risky, especially in fast-growing sectors like this one, so Mr Valecha suggests diversifying with a metaverse ETF instead.
“The Roundhill Ball Metaverse ETF gives investors exposure to companies such as Microsoft, Roblox, Tencent, Unity, Amazon and others,” he suggests.
You can invest in the future today, just understand that like any high-reward sector, it is also high risk.
Banking stocks
The US Federal Reserve is preparing to taper stimulus and could start increasing interest rates next year. Tighter monetary policy could hit the global economy and many investors are worried, but those holding banking stocks may welcome the trend.
Higher interest rates could increase net interest margins, which is the difference between what banks pay savers for depositing their money and charge borrowers when lending it out.
Net interest margins have been squeezed by near-zero global interest rates, but that could change if inflation and interest rates rise. Wider margins should mean fatter profits.
With US consumer price inflation at 5.3 per cent in August, the days of ultra-loose monetary policy are drawing to a close and interest rates are likely to rise, Victoria Scholar, head of investment at Interactive Investor, says.
“Higher net interest margins would really benefit the major banks as would a steeper yield curve,” she says.
The yield curve steepens when the gap between the yields on short-term and long-term bonds widens. It usually indicates that banks anticipate stronger economic growth and inflation, and are keen to lend money out. Again, a good sign.
Wall Street’s biggest lenders have performed well so far this year, outpacing the S&P500, Ms Scholar says. “Shares in JPMorgan are up by nearly 30 per cent, while Goldman Sachs has rallied almost 50 per cent,” she adds.
The big banks posted record second-quarter profits, with Goldman Sachs reporting its biggest earnings outperformance in nearly 10 years. Stocks have slipped since peaking in the summer, making today a tempting entry point.
“The banks report again in October and a successful third quarter would provide another tailwind,” Ms Scholar says.
head of investment, Interactive Investor
Stock market volatility is rising and there is considerable nervousness about the potential for a near-term pullback, she says, but even this could work in favour of banks.
“Sharp stock market moves tend to create outsized trading opportunities and revenues,” she adds.
Every serious investor should have exposure to the financial sector and the recent pullback could be a good opportunity to increase yours.
Top financials ETFs to consider include the Financial Select Sector SPDR Fund, Vanguard Financials ETF, SPDR S&P Regional Banking and iShares Global Financials ETF.
Energy stocks
The surge in oil and gas prices seems to have caught everybody by surprise, especially in the UK where people are fighting to fill up at the pumps.
The world may be slowly shifting to cleaner, greener wind, solar and hydrogen, but it still runs on fossil fuels, as we are discovering once again.
It is worth checking your portfolio to see what exposure you have to energy stocks and up it if necessary, Russ Mould, investment director at online platform AJ Bell, says.
“Oil and gas prices are creeping higher as demand recovers in a post-pandemic world and the combination of public pressure and government policies have put a lid on new exploration and drilling work,” Mr Mould says.
Opec and its allies are maintaining supply discipline too, which should help to maintain prices.
“A solid economic upturn, coupled with a cold Northern hemisphere winter, could really turn up the temperature for oil, gas, LNG and other fuels,” he adds.
investment director, AJ Bell
Mr Mould suggests playing this trend by purchasing top global energy stock ETF SPDR MSCI World Energy UCITS ETF.
This tracker is designed to deliver the performance of the MSCI World Energy Index as closely as possible, minus its low ongoing charge of 0.30 per cent a year.
“Its biggest holdings include global oil majors ExxonMobil, Chevron, TotalEnergies, Shell and BP, all of whom will benefit from higher hydrocarbon prices in the near term, even as they invest in renewable and zero-carbon technologies for the long term,” Mr Mould says.
