2017 has been a tremendous year for investment especially at the first half of the year. Volatility has increased when we entered the second half of the year. Major market tremors were caused by geographical political tension created by North Korea nuclear weapon threats, China and India border conflicts, and a few major European countries’ election. But still, these market tremors are considered to be very mild comparing to what has happened in previous years. We are now left with 3 weeks before we farewell the year 2017 in our rear view. Very soon we will be entering another milestone in our investment journey.
While I was very optimistic for investment when we began 2017, however as I have observed at the later half of the year, some new developments have popped up. These events will consequently affect market behavior in 2018.
Cryptocurrency Financial Segment
First, it is the development of Bitcoin trading, in particular, and cryptocurrencies in general. A new scenery on the investment atmosphere has been altered by cryptocurrencies lead by the astonishing uprising of bitcoin. Bitcoin was trading at the price of a few thousands in 2016 but it has emerged breaking through the roof to 10’s of thousands by the end of 2017. Since the legitimate listing of Bitcoin futures by Cboe and planned to be listed by a few more notable stock markets. Its price was even further pushed astronomically to the moon currently.
It was only handful of cryptocurrencies in circulation back in 2016, but it has come up to thousands created by many business entities called Initiate Coin Offering (ICO) which made use of its technological invention to raise business capital. This cryptocurrency feature is running hot and swelling by days. Cryptocurrencies trading has gone euphoria. At this point, no expert will have any doubt that this financial segment is going to crash. It is only just a matter of time. The only debatable question is whether its crash will damage the general global economy like what dotcom bubble did.
While the general stock market has not been heated up as much until that stage yet. But however, it seems that investors or the financial activities have been swiped over to this gambling speculative activities. At this moment, as quite a number of large business firms such as Microsoft, Tesla and others, have been embracing cryptocurrencies as a means of business transaction. The collapse of cryptocurrencies would certainly have ripple effects. The magnitude of it will be determined by the number of business activities surrounded by cryptocurrencies. The longer it waits of this crash event takes place, the more severe it will come into this inevitable catastrophe and global economy will be eventually tarnished all together, especially when cryptocurrency has crawled into mainstream stock market recently.
Cryptocurrencies have been such a hot topic now that it seems everyone on the street is talking about it. So much so that even some non cryptocurrency businesses use bitcoin award as advertisement to attract new customers. It shows the acceptance of these cryptocurrencies by the general public. When it collapses, the magnitude would be certainly huge and large. Global economy will be certainly at risk sequentially.
Aside from cryptocurrency imminent crash, US tax reduction plan is also another major market risk for 2018. President Donald Trump’s corporate tax cut proposal has surprisingly made significant progress in 2017. Look likely, it is going to push through and implement in 2018. US markets have been bullishly breaking numerous new heights out of the promise of corporate tax cut ever since Donald Trump came into US presidency. During the presidential campaign, Hillary Clinton has warned of the market over heating if Trump were to bring in such plan. After then it would possibly bring in another global recession.
If this new tax cut ruling is executed, inflation rate is going to rise uncontrollably. Fed would need to cold the effect by rising interest rate faster than usual. Consequently, market liquidity will be tightened. If there is any sudden economic issue pops up, crisis to settle, market structural challenge arises, economic recession will be the next scenario.
The enmity of North Korea State is in fact a long overdue event that was left unattended for many decades. It has now come to a critical stage of almost explosion between the US and North Korea. While almost the whole world, aside from Russia is now standing behind US, but US is waiting for a moment to justify its invasion into North Korea in order to eliminate those sands in its shoe.
Instead of saying “waiting”, it would be more accurate to say “creating” a moment to justify its military action. The US and its allies, namely South Korea and Japan have been intensifying their military drill near North Korea territory lately. US intention is clearly understandable if anyone want to analyze this critical event.
However, these exercises have not been fairly reported by the Western media. These military drills have been an effective provocation to anger North Korea. Therefore, North Korea was using Ballistic missiles (ICBM) to response to these provocations. Western media has been reporting these ICBM testing by exaggerating its threat to the US existence. But so far, the intensity is still below justifying level for a US preemptive strike. North Korea, on the other hand, is also aware of US tactic, it will try its best prevention to provide a sufficient ground for the US invasion. But for how long? No one really knows.
Currently the US has already employed 28,500 troops to South Korea. This gesture is sufficient enough to initiate any attack into the Northern regime. If a war does breaks out, it would not necessary be a global economic disaster if North Korea misaligns its strategy and easily defeated. However, if US miscalculated it steps, and trigger any atomic bomb, the scenery would be messy, world market would be spinning crazily.
Crude Oil price Dilemma
The consensus production cut of crude oil by members of OPEC organization has successfully boosted oil prices over US 60 per barren currently. However, there is a dilemma within members of the organization. They do not wish the price to go any further up in the fear of some of the members might leave the consensus pack secretly or even openly to seek for self interest. Secondly, they also realize that US shale oil production will be revived by reasonable good pricing from now on. Any further upward price development, will boost US production which is beyond anyone’s control, even faster than they desire.
Bringing into 2018, there will be over supply of crude oil and another possible round oil price crisis. If that arises, situation would be more complicated then previous crisis.
In view of the above scenarios, investors are advised to take a defensive strategy instead of too aggressive. However, this defensive strategy is not easily executed if the market is seen to be too much attractively bullish.
Market in 2018 will most probably be more bullish than usual caused by tax cut, and other economic positive data. This is a normal tendency before global economic crash. However, if we are aware of the hidden danger ahead, we rather be conservatively earning lesser in order to be safe, rather than earning much and losing even much more later on.
In unit trust investment, however, a defensive strategy might not necessary be earning less though. It can even gained much more if we use the right strategy tactfully during market tremors. Volatility is in fact a good opportunity to gain profit if we know how to maximize it.
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