Most people assume that there is a direct link between the state of the economy and the stock market, and most of the time they would be broadly right.
When the economy is growing and businesses are making money, share prices typically rise, too, but right now that connection looks broken.
Last year was an unprecedented disaster for the global economy, with some developed countries seeing their gross domestic product fall by a fifth amid the Covid-19 pandemic. That is the kind of drop you only see in a major war.
Yet, instead of collapsing, share prices in many countries ended the year higher, in many cases hitting record highs.
For example, the MSCI World Index grew 15.9 per cent in 2020, when common sense suggests it should have crashed by an even greater amount.
Other markets fared even better. MSCI China jumped 29.67 per cent and MSCI USA climbed 21.37 per cent.
That is a massive disconnection as businesses are forced into lockdown, consumers are squeezed and unemployment climbs.
There is an easy answer to the conundrum. Central bankers and governments responded to the Covid-19 pandemic by pumping trillions of dollars into fiscal and monetary stimulus, and that is boosting asset prices, from shares to property to Bitcoin.
If the US Federal Reserve hadn’t intervened, the stock market crash we saw in March would only have been the beginning of the meltdown. Effectively, politicians and central bankers are backstopping share prices.
Markets are also betting the vaccine breakthroughs will liberate the world from lockdown this year, and fire up the mother of all recoveries.
Private investors who are wondering whether to pump more money into the market face a tricky question. Are stock markets getting carried away and pricing in a recovery that may not happen, daring you to invest at today’s elevated prices?
Richard Hunter, head of markets at platform Interactive Investor, says “Main Street” and “Wall Street” are always slightly out of sync. “Wall Street is looking forward to company earnings and the general economic outlook at some future point, whereas Main Street focuses on where jobs and growth are today.”
Chaddy Kirbaj, vice director at Swissquote Bank in Dubai, says stimulus has further widened the gap between the stock market and real economy. “The money has mostly gone to the big financial institutions rather than, say, agriculture, industry and trade. Many are using the cash to buy back their shares, which boosts stock values but does little for consumers.”
You should diversify by investing in a blend of countries, markets and sectors, via shares or exchange-traded funds
The danger is that this is creating asset bubbles, such as Bitcoin and the Reddit-fuelled GameStop rally, and Mr Kirbaj anticipates further euphoria. “Traders are likely to target similar assets as they continue their fight against the Wall Street establishment.”
He urges investors to remain cautious, and avoid diving into cheap assets without doing due diligence or understanding how they work.
One thing has not changed. “You should diversify by investing in a blend of countries, markets and sectors, via shares or exchange-traded funds,” Mr Kirbaj says.
Vijay Valecha, chief investment officer at Century Financial, reckons markets are at record highs because the prospects for investors look bright.
In 2020, earnings per share across the S&P 500 index of blue-chip US stocks fell to $124.68, a drop of 18 per cent from $152.25 in 2019.
This year and next look much better, with earnings forecast to hit $169.03 in 2021 and $196.15 in 2022. “The Nasdaq technology index is also expected to grow handsomely,” Mr Valecha says.
With company earnings set to rise, stock valuations do not look excessive and more stimulus is on its way.
Mr Valecha adds: “President Biden’s planned $1.9 trillion pandemic rescue package could further bump up corporate profits.”
Mr Hunter agrees that the outlook is becoming brighter. “When economies recover, pent-up demand should boost beaten-down sectors such as travel and tourism, banks, oil companies and mining stocks.”
When economies recover, pent-up demand should boost beaten-down sectors such as travel and tourism, banks, oil companies and mining stocks
Laith Khalaf, financial analyst at AJ Bell, says shares are the best way to play the recovery. “By lowering interest rates on cash and bonds, central banks have left investors nowhere else to go.”
He warns the road to recovery could be bumpy. First, there is the euphoria issue, as seen with Bitcoin and GameStop. “What isn’t clear is whether this is limited to small pockets of investors, or symptomatic of a wider disregard for risk.”
Some fear markets have got carried away. Stock market historian Jeremy Grantham has warned the “long, long bull market” that began after the financial crisis in 2009 has finally matured into a “fully-fledged epic bubble”.
Extreme overvaluations, explosive price increases and “hysterically speculative investor behaviour” are creating what he predicts will prove to be “one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000”.
Mr Khalaf acknowledges these concerns and says anything could happen from here. “The market may rise 20 per cent or fall 20 per cent. It’s that kind of year.”
Given the uncertainties, he says investors should hedge their bets by drip-feeding money into stocks gradually.
As ever, the investment world is split into optimists and pessimists. So where should these two types invest today?
Optimists
Mr Khalaf says optimists could benefit from the recovery by investing in a low-cost global index tracking ETF.
The iShares Core MSCI World UCITS ETF and Vanguard All-World UCITS ETF invest in thousands of stocks in different countries across the world, spreading your risk.
Mr Valecha says optimists who believe the economy will open up this year could buy the US Global Jets ETF. “This invests in US and international passenger airlines, aircraft manufacturers, airports and terminal services companies.”
The airline industry remains vulnerable to further lockdowns, as many countries close their borders, so make sure you understand the rewards as well as the risks.
Mr Valecha says the shift to clean energy also provides opportunities for optimists, and tips the Invesco WilderHill Clean Energy ETF.
Demand for lithium is expected to triple in the next five years as the metal is needed for electric vehicles. “The Global X Lithium & Battery Tech ETF will help you ride this trend,” Mr Valecha adds.
Dzmitry Lipski, head of funds at Interactive Investor, tips the Baillie Gifford Responsible Global Equity Income Fund, which pursues sustainable income and capital growth by investing responsibly in global equities, while excluding less ethical industries such as tobacco and alcohol. “Top holdings include Procter & Gamble, Roche, Microsoft and Nestle.”
Pessimists
If you are feeling cautious or even outright pessimistic, Mr Khalaf suggests putting some of your money into a gold ETF, such as WisdomTree Physical Gold. “This acts as a hedge against catastrophe, but should account for no more than 10 per cent of your portfolio.”
Alternatively, he suggests a conservatively run multi-asset fund like London-listed RIT Capital Partners.
Mr Kirbaj tips a “less aggressive” ETF that still offers higher growth potential. “Water is one of the world’s most precious asset classes and the iShares Global Water UCITS ETF gives you exposure to 50 of the largest global companies in this area.”
Mr Lipski highlights the Capital Gearing Trust, which aims to preserve investors’ capital while beating inflation over the longer term. “It is a good core holding due to its defensive stance and diversification across bonds, equities and property, with small holdings in infrastructure, gold and cash.”
The trust also offers protection against inflation, which could make a comeback as stimulus reflates the economy, Mr Lipski says.
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Price: From Dh2,099
How will Gen Alpha invest?
Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa, forecasts that Generation Alpha (born between 2010 and 2024) will start investing in their teenage years and therefore benefit from compound interest.
“Technology and education should be the main drivers to make this happen, whether it’s investing in a few clicks or their schools/parents stepping up their personal finance education skills,” he adds.
Mr Chahwan says younger generations have a higher capacity to take on risk, but for some their appetite can be more cautious because they are investing for the first time. “Schools still do not teach personal finance and stock market investing, so a lot of the learning journey can feel daunting and intimidating,” he says.
He advises millennials to not always start with an aggressive portfolio even if they can afford to take risks. “We always advise to work your way up to your risk capacity, that way you experience volatility and get used to it. Given the higher risk capacity for the younger generations, stocks are a favourite,” says Mr Chahwan.
Highlighting the role technology has played in encouraging millennials and Gen Z to invest, he says: “They were often excluded, but with lower account minimums ... a customer with $1,000 [Dh3,672] in their account has their money working for them just as hard as the portfolio of a high get-worth individual.”
Museum of the Future in numbers
- 78 metres is the height of the museum
- 30,000 square metres is its total area
- 17,000 square metres is the length of the stainless steel facade
- 14 kilometres is the length of LED lights used on the facade
- 1,024 individual pieces make up the exterior
- 7 floors in all, with one for administrative offices
- 2,400 diagonally intersecting steel members frame the torus shape
- 100 species of trees and plants dot the gardens
- Dh145 is the price of a ticket
How to watch Ireland v Pakistan in UAE
When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.
The specs
Price, base / as tested Dh12 million
Engine 8.0-litre quad-turbo, W16
Gearbox seven-speed dual clutch auto
Power 1479 @ 6,700rpm
Torque 1600Nm @ 2,000rpm 0-100kph: 2.6 seconds 0-200kph: 6.1 seconds
Top speed 420 kph (governed)
Fuel economy, combined 35.2L / 100km (est)
Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
- Solo riders only, no passengers allowed
- Do not drive outside designated lanes
Defence review at a glance
• Increase defence spending to 2.5% of GDP by 2027 but given “turbulent times it may be necessary to go faster”
• Prioritise a shift towards working with AI and autonomous systems
• Invest in the resilience of military space systems.
• Number of active reserves should be increased by 20%
• More F-35 fighter jets required in the next decade
• New “hybrid Navy” with AUKUS submarines and autonomous vessels
The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
Price, base / as tested: Dh182,178
Engine: 3.7-litre V6
Power: 350hp @ 7,400rpm
Torque: 374Nm @ 5,200rpm
Transmission: Seven-speed automatic
Fuel consumption, combined: 10.5L / 100km
In Search of Mary Shelley: The Girl Who Wrote Frankenstein
By Fiona Sampson
Profile
Red flags
- Promises of high, fixed or 'guaranteed' returns.
- Unregulated structured products or complex investments often used to bypass traditional safeguards.
- Lack of clear information, vague language, no access to audited financials.
- Overseas companies targeting investors in other jurisdictions - this can make legal recovery difficult.
- Hard-selling tactics - creating urgency, offering 'exclusive' deals.
Courtesy: Carol Glynn, founder of Conscious Finance Coaching
Muslim Council of Elders condemns terrorism on religious sites
The Muslim Council of Elders has strongly condemned the criminal attacks on religious sites in Britain.
It firmly rejected “acts of terrorism, which constitute a flagrant violation of the sanctity of houses of worship”.
“Attacking places of worship is a form of terrorism and extremism that threatens peace and stability within societies,” it said.
The council also warned against the rise of hate speech, racism, extremism and Islamophobia. It urged the international community to join efforts to promote tolerance and peaceful coexistence.
WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed
Our legal consultant
Name: Dr Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
UAE currency: the story behind the money in your pockets
The Florida Project
Director: Sean Baker
Starring: Bria Vinaite, Brooklynn Prince, Willem Dafoe
Four stars
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UAE currency: the story behind the money in your pockets
What is graphene?
Graphene is a single layer of carbon atoms arranged like honeycomb.
It was discovered in 2004, when Russian-born Manchester scientists Andrei Geim and Kostya Novoselov were "playing about" with sticky tape and graphite - the material used as "lead" in pencils.
Placing the tape on the graphite and peeling it, they managed to rip off thin flakes of carbon. In the beginning they got flakes consisting of many layers of graphene. But as they repeated the process many times, the flakes got thinner.
By separating the graphite fragments repeatedly, they managed to create flakes that were just one atom thick. Their experiment had led to graphene being isolated for the very first time.
At the time, many believed it was impossible for such thin crystalline materials to be stable. But examined under a microscope, the material remained stable, and when tested was found to have incredible properties.
It is many times times stronger than steel, yet incredibly lightweight and flexible. It is electrically and thermally conductive but also transparent. The world's first 2D material, it is one million times thinner than the diameter of a single human hair.
But the 'sticky tape' method would not work on an industrial scale. Since then, scientists have been working on manufacturing graphene, to make use of its incredible properties.
In 2010, Geim and Novoselov were awarded the Nobel Prize for Physics. Their discovery meant physicists could study a new class of two-dimensional materials with unique properties.
SPECS
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