While the global economy struggles with the fallout of Covid-19, financial markets are showing signs of recovery and this means there are opportunities for investors. So, for those with an optimistic outlook, we are taking a look at what is driving the S&P 500, NIO and XRP.
The S&P 500, the index tracking the largest listed US companies, is making headlines as it is poised to hit a new all-time high, moving past the 3,386 it set back in February. The index launched in 1957 and even though there have been some rocky periods since, it is remarkably creeping towards new territory in the same year as Covid-19. In a few months it has been able to recover from a trough of 2,287 on 23 March.
But why? Many analysts have pointed to this recovery being fuelled by a select few tech giants (Apple, Alphabet, Amazon etc), which are powering the whole index upwards because of their size, even though some other constituents are having a much more difficult time. There is no doubt these companies have had a good 2020, as even though the coronavirus has disrupted both business and everyday life for billions around the world, the demand for tech products and services has been unparalleled.
For example, with nearly entire populations living under lockdown, the use of Amazon’s home delivery and entertainment services has skyrocketed. Amazon’s share price has rallied to the point that the company’s owner (Jeff Bezos, the richest man in the world), saw $10bn added to his net worth in one day.
Even though the picture may be less rosy for other sectors and the wider US economy, some equity investors are taking confidence from this rally and analysts at Goldman Sachs believe the S&P 500 could even close around 3,600 by the end of the year. However, there is still the US election to face before then…
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Capital at risk.
To buy a single share in Tesla would set an investor back over $1,700, based on today’s market price, signalling the company’s hold on the growing electronic vehicle market, which is gathering momentum.
Fortunately, there are other electronic vehicle manufacturers and, of them, Chinese company NIO is attracting a huge amount of interest. In fact, analysts Piper Sandler recently called it the ‘Tesla of China’. While it can be easy to get carried away about companies in new areas of tech, NIO is already growing and is well located to capitalise on China’s growing interest in electric vehicles. NIO has a healthy balance sheet and is experiencing strong demand for its vehicles, reporting a surge in deliveries in the second quarter to 10,331 (nearly triple the same quarter in 2019).
NIO is anticipating further growth and registered a US ADR in 2019 to raise more capital. This year, its US dollar share price rallied from $3.71 on 2 January to $13.63 on 17 August. NIO hasn’t (yet) stated an intention to do battle with Tesla in its key markets, but the Chinese firm is extremely well-placed in its homeland for future growth.
Capital at risk.
XRP is crypto firm Ripple’s coin and there is a definitive number in circulation — 100 billion tokens to be precise — and while investors are spoilt for choice when it comes to the cryptocurrencies, demand for XRP has proven robust. Ripple CEO Brad Garlinghouse recently revealed that since launch in October 2018 around $2bn has been processed around the world in XRP coins.
Ripple attributes the popularity of XRP to its use in cross border payments. The firm accepts fiat currency (pounds, dollars, euros – anything that has been legitimised by a government) with the equivalent in XRP then being sent to a corresponding exchange in another country before being converted back to actual money again. As the world has been forced to become more digital in the past few months, reliance on XRP has accelerated and the value has responded. On 14 February, XRP had a price of $0.32 and by 15 March this had fallen to $0.14. However, it has since climbed back up in price and as of 17 August is priced at $0.31.
Ripple is building on this success and is introducing a new app that would allow for more messaging between XRP users, with a ledger being integrated into mainstream messaging apps. A step like this could help break down the barriers some people have to accessing cryptos and embracing a new digital world.
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