Fred Razak, Chief Trading Strategist from CMTrading, weighs in on financial markets following another interesting season. What happens next? 

“Right now, it seems that governments and central banks are doing everything they can to stop the markets hitting some sort of panic, because every time the markets sell off, they actually make a comeback. There is a lot of attention focused on big tech stocks. They are so profitable and in a more advantageous position than the rest of the market – and have been for a while. 

“Q2’21 saw a surge in global companies in the tech space achieving unicorn status. While the US major players accounted for the majority of new unicorns, there are dark horses to look out for too. It’s a bit of a ripple effect. Companies like Apple, Amazon, Microsoft Netflix and Google have a widespread effect on market trends and there are other secondary companies that are riding the wave. 

“Semiconductors, for example – like Jupiter Networks, Cisco and Intel – used to be the primary companies about 20 years ago but are now playing second fiddle to the bigger tech players. These companies are reaping the benefits of what is happening in big tech stock trading. 

“The tech unicorns are sitting on a lot of cash. They could almost close their doors tomorrow, not sell another product and still be making money. The fact that their valuations are massively high has kept expectations about their performance consistent for about two years, during which there has been tremendous inflation in the market. 

“If you take inflation vs the appreciation of the markets, the valuations we’re seeing are being attributed to super inflation. This is affecting real estate, which is very scary because we’re getting into hard assets there, and when the hard assets have super inflationary valuations ascribed to them, their valuations could quadruple or triple in a short space of time. But they have a ceiling for how far they can go. That’s when things become a little bit more concerning – when hard assets get to the point that they are so over valuated – and I think we're reaching that point right now across the board. 

Where to next? 

“While the pandemic isn’t over yet, there is a growing sense of optimism as COVID-19 vaccine distribution accelerates globally, and it’s possible investors may start to focus on the sectors expected to remain attractive in the post-pandemic world. So, a common question is, what could the new unicorns be as this unfolds? 

“Theoretically, I don't think that we're going to have new unicorns per sé. We're not out of the woods just yet. We all hoped that once we had the vaccine, things would start slowing down. And indeed, they did seem to be looking that way for a while. In March, April and May you saw a tremendous acceleration of the vaccines. Fewer people were dying, and things were looking up. But the new mutations are slipping in, specifically Delta and new concerns have arisen. 

“There is widespread conjecture about how effective the vaccines are and whether or not we’ll have to go back into lockdown. We're still not operating at 100% pre-pandemic capacity. Tourism and travel are still significantly under pressure, and how much longer can these airlines continue working at 75% or less capacity? We are still at a crossroads, waiting to see how these mutations will play themselves out. 

Changes in the trading landscape 

“In terms of trading methodologies, there have been major shifts because of the pandemic. There has been much less focus on the currencies and traditional forex trading for quite a while. The currencies actually looked like they were starting to wake up again for a bit, but they went back to sleep. Everything is really equity in the market right now. 

“I think that moving forward, we're probably going to continue that trend. Markets are trending and adjusting based on the information out there in terms of how coronavirus is being handled from country to country. We’re waiting with bated breath to see what economic assistance central governments and central banks will offer their specific countries. So, there are a lot of things happening in terms of methodologies that are being shifted right now because of how the market is playing this all out. Bitcoin trading is becoming a haven investment, where naturally gold was traditionally the safe bet. That’s a drastic change. 

A creative take: Imagining the world 10 years from now – What companies and/or commodities are dominating? 

“10 years from now, the price of oil is likely to be affected for sure because of prescribed standards to be met by 2030/2035. Either manufacturers or countries themselves are aiming to be completely emission free and not have cars that are consuming oil. 

“To go organically from an oil consuming market into a solar or electric power consuming market is not an easy ask. I don't think we're completely there, but the means are being put into place to make that shift. It's going to still take quite a bit of time. Gold is probably going to be affected, just because it's not retaining its standard for inflationary concerns. Stocks should be much more focused than they have been because the world is a much smaller place now, and people are learning what it means to have shifts in the market. That's going to add a lot more liquidity to the market in the future. 

Closing thoughts on expectations for Q3 

“Ultimately, I think we're going to just continue seeing what we've seen in the first and second quarter, and I don't think there's going to be much of a change here. We're going to continue this trend where the central government and the central banks from different countries will go ahead and make the adjustments to the economy that they see fit in order to keep their countries above water. 

“I do expect the markets to continue to be pretty bullish. The markets haven't fully digested where we're at on Main Street. If, as I often do, you go through major US cities, you see a lot of homeless people and unemployed people, but that is not being reflected in Wall Street. So Main Street and Wall Street don't speak the same language as the rest of the working world. I’m hoping things will get better, but it is tough time for the man on the street. 

For more information on CMTrading, visit their official website at www.cmtrading.com or call +27105008026, and one of their friendly staff will assist you. CMTrading is the brand name of Global Capital Markets Trading Ltd (A Seychelles company, company no. 104785)

Tope Ijibadejo, Nigeria Region Manager for CMTrading, Africa’s largest online broker and a leader in the international markets, gives his thoughts on how to invest in Forex and how to potentially spot Ponzi investment schemes.

“When looking for a reputable broker, there are several signs one should look out for, as forex trading can be accessed by pretty much anyone. Firstly, ensure the broker is licensed and operating under a government license or regulation that covers your country. Licensed and regulated brokers are bound to operate under set rules and standards.

“Generally speaking, this should help protect your interests. Always ensure the license that covers you is the one that is from your country of citizenship or residence. However, if your country does not regulate the operation or broker, you can still get a layer of protection by ensuring the broker is working under a known government license.

“It is also important to research the company’s track record and reviews. Reviews can be helpful but sometimes competitors pay review websites to taint the image of other companies just to look better in the public eye. For a better picture, it is more effective to find unbiased information about a broker from its existing and former clients. Find somebody who knows somebody else that has experience using the broker’s services. This might be time consuming, but it could save you a lot of time and money in the bigger picture.

“The most common scams in Nigeria are investment scams. It is rampant because there is a prevalent trend where investors try to grow their money through legitimate means online – like forex – without going through the process of understanding the basics of online trading. Unfortunately, con artists capitalise on this trend and set up scam companies that promise juicy monthly returns with guaranteed capital protection. Ignorant investors fail to investigate the validity of these bold claims and get their fingers burned.

“In most situations, to build public confidence, these companies start ponzi schemes by using part of newer investors’ capital to pay interest/ROI to the older investors. Satisfied investors are used to draft in greater participation by giving mouth-watering benefits for referral. These companies are aggressive with advertising and publicity so they can maximise and expedite exposure. Some will even go as far as securing famous social media influencers and network marketers to encourage participation. From the outside, it appears to be working and can do so for over a year, until the perpetrators either disappear with the money or start to experience a decline in new investors, which leads to the scheme crashing.

“To protect yourself against forex scams, you must understand the principles of investing in forex. Like every other business, trading forex has underlying risks. That means, no risk – no reward. Stop looking for guarantees, as you will most likely buy into lies and fall victim to unfulfilled promises.

“Investors must educate themselves as it helps them manage risk better. Profit is made only when the trader outsmarts the risk, and investors who are well informed are more likely to do so.

“It is advisable to invest your money directly with a forex broker instead of putting it in the hands of a third party. Money invested with a forex broker is accessible and withdrawable at any point in time should you no longer be confident or happy with the outcome of the investment. However, when you invest using third parties, you put yourself at their mercy. It can become frustrating, much like watching TV without a remote control to adjust volume or change stations.

"Moreover, should you decide that you have not invested wisely, you may find yourself trapped in the investment and have no choice but to await your fate. If you must utilise the service of any third party, fund your account with a broker and share your trading account login details with them so they are able to make trades on your behalf, or better still, use a copy trading solution if it is available. If you are not happy with the outcome, you can either lock out the third party by changing your password or stop copying trades. This is the type of control every investor should have.

“There are regulatory bodies that you can refer to in order to verify brokers before you trade. Check the broker’s website to confirm which license or regulations they are operating under and visit the regulator’s website to verify this claim. Every regulator has a list of the brokers they oversee on their website.

“The reason scams are so prevalent is due to a lack of regulation in some countries. Citizens will never know it all, so it is up to the government to protect them from public financial scams. Should your country not regulate forex business, it is vital that you gather enough information and eliminate ignorance before investing. This can be achieved by attending seminars, webinars, workshops or conducting comprehensive online research before making an investment. Forex scams are more common in countries without any form of licensing or regulation. Within the last decade, Nigeria has experienced several high-profile forex scams because of this.

“Trading with an offshore broker is riskier because you will not be covered in the event of bankruptcy or any other unforeseen situation. It is safer to trade with a broker that is licensed and regulated by your own government. Your government is expected to offer protection through regulation.

“Regarding Nigeria specifically, there should be a move by government to understand and regulate the forex industry (like South Africa did some years ago), seeing that there is significant interest in the forex business. Regulation will help eliminate high profile forex scams, increase investor confidence and participation from corporate entities which will ultimately grow the economy”.

For more information on CMTrading, visit their official website at www.cmtrading.com or call +27 10 500 8026 and one of their friendly staff will assist you.

CMTrading is the brand name of Global Capital Markets Trading Ltd (A Seychelles company, company no. 104785)