- Something is brewing now –
It is often the case that there are sharp corrections in August before US elections and “volatility” increases sharply. It is then also often the case that what has been built up in positive performance throughout the year can be lost in just a few days. The trigger this time was the Japan mini-crash, which in turn was caused by the unwinding of carry trades. There was also a “de-leveraging”, i.e. the unwinding of leveraged long positions. Commodities such as copper also came under pressure due to economic concerns, as did Bitcoin and many other cryptocurrencies, which plummeted in price.
Only “gold” and the Balkan region have so far proved to be clear outperformers as a reasonably “safe haven” (SETX Index +16%), but shares from Kazakhstan are also still up significantly (KTX Local Index +20%). Risk-averse investors can buy shares from Kazakhstan directly online via the broker Freedom Finance (Freedom Broker) from Cyprus if they open an account there beforehand, which is easy to do at the following link: </strong
https://freedom24.com/invite_from/2952896 .
Andreas Männicke also gives his assessment of the new opportunities in Eastern Europe in his stock market letter EAST STOCK TRENDS (www.eaststock.de) and in his new EastStockTV video, episode 235 at www.YouTube.com.
Crash or correction?</strong
It’s often like this: as soon as you go on holiday to enjoy the sun and sea, share prices and cryptocurrencies plummet. And when you get back home, you’re annoyed that you didn’t sell beforehand, even though it was advisable to do so. There was a global sell-off on 5 August, which was bound to happen at some point anyway. The situation is similar to 1987, where there was a mega crash after sharp interest rate hikes and geopolitical risks, but this only happened in October. However, the situation is also similar to 2000/2001 and 2008/2009, where the bull market was also concentrated on just a few stocks and bubbles can form here, similar to the seven “magic” AI stocks.
Will a bear market or real crash only come after interest rate cuts?
Incidentally, interest rate cuts led to a bear market or crash back then, as interest rate cuts were accompanied by recessionary tendencies. This could happen again now. The slump on Wall Street and the DAX can still be categorised as a normal correction, although in Japan it looked more like a mini-crash. Incidentally, crash prices are almost always good buy prices, but the question now is whether a possible war in Iran could trigger a second sharp wave of selling. So now the big question is, is this just the beginning of a coming crash or just an overdue correction? What is clear is that despite the sharp correction, there has not yet been a capitulation phase on Wall Street. There is also a “plunge protection team” in the USA that is preventing a crash from occurring so quickly.
Stock market dreams can burst quickly
The Dow Jones Industrial Index reached a new all-time high of over 41,000 index points in July, but has now fallen to below 38,700 index points, representing a gain of just 2.6% by 5 August. However, the NASDAQ Comp. Index, which reached a new all-time high of over 18,500 index points at the beginning of July and has now fallen to 16,200 index points. On 5 August alone, the NASDAQ Comp Index fell by 3.4 per cent. This shows how quickly stock market dreams can be shattered. It started with a gap at 15,740 index points and then recovered to 16,200 index points.
DAX under pressure
The DAX has also corrected sharply since the end of July, having been close to its all-time high of around 18,600 index points in July, but has now slumped to just over 17,300 index points. Panic was particularly high in Germany in the early hours of the morning up to 10.00 a.m., although prices recovered again after Wall Street opened. However, the technical market situation remains very fragile even after price recoveries. If Iran attacks Israel in the near future, there could be a second wave of selling. US shares such as Apple, Nvidia and Tesla also lost over 10 per cent of their value in pre-market trading, but then recovered somewhat in Wall Street trading.
Japan as the trigger for a global sell-off
The DAX’s gain fell from over 12 per cent since the beginning of the year to a meagre 3.4 per cent. The MDAX and SDAX, on the other hand, are now down sharply. It is quite possible that the DAX will also slip into negative territory by the end of August, as the Nikkei 225 Index has already done. A plus of over 20 per cent and a top performance among the world’s stock markets turned into a minus of over 5 per cent in Japan, making it one of the top losers among the world’s stock markets. It is quite possible that the bear market will continue until October and that there will only be a sustained price recovery after the US presidential elections. However, interim rebounds are always possible due to the interest rate cut fantasy. However, hurricane season is now also looming in the USA and Mexico, where power outages and damage can occur, something that has hardly been recognised to date.
The price slump in Japan was triggered by the cancellation of so-called “carry trades”, i.e. borrowing money in yen due to low interest rates and the weak yen and investing in shares either at home or on foreign stock exchanges, including crypto exchanges. Now that inflation has also risen slightly in Japan and interest rates have been raised slightly, the yen has suddenly strengthened. On 5 August, the Japanese stock market recovered considerably in intraday futures trading, but it remains to be seen how sustainable the recovery will be.
Risk-averse investor behaviour is now appropriate
The foreign positions were mostly leveraged and now there has been a rapid “de-leveraging” and risk-averse investment behaviour. The foreign positions had to be liquidated quickly in order to repay the loans in yen and not suffer excessive losses. This led to the crash on the previously highly praised Japanese stock market and, as a result, to heavy price losses on Wall Street and other global stock exchanges, with most stock exchanges also experiencing a slump on 5 August.
Economic concerns weigh on global stock and commodity markets
In addition, there were economic concerns in the USA due to weak labour market data on Friday – the US unemployment rate rose to 4.8% and the figures for newly created jobs were revised sharply downwards in the previous months – as well as the weak early indicators, which tend to point to a significant economic slowdown in the USA. As a result, commodities have also been weak recently due to demand concerns.
The price losses on the NASDAQ were most pronounced due to the high price losses in AI shares such as Nvidia, where the price of Nvidia on German stock exchanges temporarily slumped by 13% to €107 on 5 August, although the price was still close to its all-time high of €130 in July. Nvidia’s market capitalisation shrank from over USD 3 trillion to USD 2.46 trillion. USD, i.e. a loss in value of over USD 500 billion in just a few days, which was foreseeable and overdue due to the overvaluation (P/E ratio >100).
Stock market guru Waren Buffet goes into cash – you too?
Stock market guru Waren Buffet sold 50 per cent of his Apple shares in the run-up to the price slump as if he had smelled a rat. He is now swimming in cash and so should every investor. Apple’s share price also slumped by more than 5 per cent on 5 August (pre-market even by more than 10 per cent) to USD 206 and its market capitalisation from USD 3.37 trillion to USD 3.17 trillion. USD. However, there was no bloodbath on Wall Street on 5 August, as the Bild newspaper suspected in the morning. Panic is not appropriate. Nevertheless, the price slump came as a complete surprise to many investors who were on holiday, but not to some market experts such as Waren Buffet.
Cryptocurrencies also under heavy pressure
When the NASDAQ index collapses, cryptocurrencies such as Bitcoin or Ethereum usually slump as well. On 5 August, Bitcoin fell by as much as 12 per cent from 58,000 USD/BTC to a low of almost 50,000 BTC/USD, but has now recovered to over 54,000 BTC/USD. The price was still close to its all-time high of 67,000 BTC/USD on 26 July. The price loss was even greater for Ethereum, which fell by as much as 16% to a low of just 2250 ETH/USD on 5 August before recovering to 2480 ETH. Here, too, the volatility is now extremely high. On 19 July, the price was still at 3500 ETH/USD. Other cryptocurrencies fared in a very similar way.
Further uncertainties due to upcoming US elections and a possible war with Iran</strong
There will certainly be price recoveries in the next few days, but if there is another piece of bad news, prices could plummet again immediately because the market is now in a bad way everywhere. In this respect, investors should continue to hold more liquidity, unless they are experienced day traders or at least swing traders. Calls are now getting louder and louder for the Fed to cut interest rates immediately in an emergency, but this is unlikely to happen before September. Fed Chairman Powell has left interest rates up for far too long and is now under pressure himself. But then comes the US election campaign and there are often price slumps on Wall Street before the election but price rallies again after the US election. However, if Harries wins the election, Wall Street could be in for a rude awakening, as was previously the case in France and Mexico with the “slide to the left”.
The state coffers are getting emptier and emptier and public discontent is growing
Incidentally, many governments will then realise that there is not enough money in the state coffers and that taxes will have to be increased because the budget is getting too far out of balance. This could be the case in both the USA and Germany. The USA could have problems placing its new government bonds, as Japan and China are now less or not at all active as buyers. It is questionable whether there will really be so much money left for the war in Ukraine. If Donald Trump wins the election, the money tap for Ukraine will probably be turned off soon and then the war will also be over relatively quickly.
The German Finance Minister Lindner has already indicated that €5bn is missing from the state coffers. We can only hope that this will not lead to such eruptive outbursts among the population in many countries as recently occurred in Bangladesh or occasionally in the UK. In the next elections in eastern Germany, the German government is likely to be further penalised and parties such as the AFD and the Wagenknecht party will once again see large increases in votes. Germany could enter a recession very quickly and the wave of insolvencies could increase, which is already very high with over 11,000 insolvencies. More and more energy-orientated companies are now being forced to move abroad.
The high geopolitical risks have been ignored so far, but could be the straw that breaks the camel’s back
Far too little attention is still being paid to the geopolitical risks (similar to 1987) posed by the war in Israel and the war in Ukraine. Iran could now attack Israel again following the death of a Hamas leader and China would then stand by Iran if the USA were to actively intervene in the war. Putin is also unlikely to put up with Western long-range missiles being fired at Russian territory for long in the Ukraine war. A Russian supersonic bomber was recently destroyed by a drone on the Finnish border and it is highly questionable whether a Ukrainian drone can fly 3000 kilometres. Now the first 6 to 10 UAS 16 fighter jets from the USA are to be deployed in Ukraine. A further 50 FH 16 fighter jets are to follow. Russia, on the other hand, is now slowly advancing in the Donetsk region. What is urgently needed now are peace negotiations, but the West is clearly not yet ready for this.
Yen, gold, bonds and south-east Europe as a “safe” haven – but for how much longer?
If the geopolitical dangers increase, the pressure on equities and cryptocurrencies could increase again. Most commodities have also fallen in recent days due to demand and economic concerns, including copper (-2.6 per cent) and silver (-4.6 per cent). One of the few “safe havens” so far has been long positions on the yen, bonds (Euro-Bund future and T-bond future up!), gold (only slightly down) and, get this, shares from south-east Europe, where there have been hardly any price losses so far, but a clear outperformance. Although the SETX index for shares from Southeast Europe also fell by just over 2 per cent on 5 August, it is still up by over 16 per cent. However, caution is now advisable here too.
Continued outperformance opportunities in Eastern Europe
However, many stock market indices from Eastern Europe performed even better than the DAX index. The stock markets from the Balkan region and south-eastern Europe (Slovenia +22%, Serbia +17%, Romania +14.5%, Bulgaria +8%) performed particularly well, as did those from Kazakhstan (+20%), even Ukraine (+14%), all of which clearly outperformed the DAX (+3.4%). But the Hungarian stock market has also been convincing after the correction with a gain of 10 per cent since the beginning of the year in euros (in forints even +14 per cent). Eastern European shares are considerably cheaper than Western shares and also have higher dividend yields. It is therefore still worthwhile for investors to position themselves in Eastern Europe.
Betting on Ukraine after the war
After the war, the proverbially bombed-out prices of shares from Ukraine in particular are likely to be very promising. Parliamentary elections will be held in Georgia in October and, following the new “agent law”, there could even be a new “Maidan” and thus a further conflict between the USA/EU and Russia. The EU has suspended the EU accession process for the time being and the USA is threatening sanctions against Georgia.
Freedom Broker offers market access to Kazakhstan
Via the broker Freedom Finance from Cyprus, which also presented itself at the Invest trade fair in April 2024 and attracted a lot of interest, you can also buy shares from Kazakhstan directly online, which has the advantage that you can quickly receive the sometimes very high dividends in your securities account. For example, Halyk Bank even has a dividend yield of 16% and a return on equity of 34%. At Freedom Broker you also receive interest on your savings account in USD of over 8% and in euros of over 6%. You can easily open an account online at the following link: https://freedom24.com/invite_from/2952896 If you need advice on exchanging Russian ADRs for original shares, Freedom Broker, which also has a branch in Berlin, is also the best place to go.
However, investors can still buy Russian ADRs at discount prices in the OTC market via Freedom Broker. Something similar is also possible via the broker Zerich Securities Ltd from Cyprus if you open an account via the following link: https://trade.mind-money.eu A list of tradable Russian ADR is published in the stock market letter EAST STOCK TRENDS (www.eaststock.de). Both brokers also offer participation in lucrative IPOs on Wall Street as well as high returns on overnight and fixed-term deposits.
Inform first, then invest
Find out more now about the background and development of the Ukraine/Russia crisis as well as the future recovery potential of undervalued shares from Eastern Europe. There are also new opportunities in the Baltics, Southeast Europe and the CIS republics (Kazakhstan, Georgia), with the respective stock indices all up in 2023. In 2023, 12 stock exchanges from Eastern Europe were among the 30 best-performing stock markets in the world, with 5 clearly outperforming the DAX. In 2024 , 10 stock exchanges from Eastern Europe outperformed again with a strong gain. It is therefore still worth looking beyond the horizon to Eastern Europe.
Order a trial subscription now (3 issues by e-mail for just €15) to the monthly stock market letter EAST STOCK TRENDS (EST) with another Ukraine/Kazakhstan/Russia special and a dividend special as well as lots of background information and new investment suggestions such as the “Stock of the Month” and lucrative certificates at www.eaststock.de, under Stock Market Letter. The last EST was published on 28 June 2024.
TV/radio notes: On 5 February 2024, Andreas Männicke was interviewed by Carola Ferstl on Money Talk about gold, commodities and the new opportunities in Eastern Europe. You can download all radio and TV interviews from the video archive at www.eaststock.de, including the last video in EastStockTV, episode 235. By the way: have you already subscribed to the YouTube channel EastStockTV ?
If you are interested in new EastStock seminars “Go East” in Frankfurt/M or other cities, please contact the EST editorial team (www.eaststock.de )
Subscribe now to Andreas Männicke’s free newsletter with the latest news on the world and eastern stock markets at www.eaststock.de .