Company / Analytics

Analytics, 03 February 2020

The Coronavirus: A good time to invest in Futures?

Does the Futures market offer hope should a global economic crisis arise out of the Coronavirus outbreak?

The World Health Organization has finally declared the coronavirus outbreak a global health crisis. It was inevitable that the outbreak would be declared a global emergency, as the number of infections outside China kept rising.

Economists believe that declaring the outbreak of a global emergency crisis will affect the global economy, resulting in potential sell-offs. Major US companies such as Google, Facebook and Apple had already suspended their operations in China, affecting the global supply chain, especially for Apple which expected to launch some products in the first half of 2020.

The crisis has already affected the financial market. Major Asian shares have fallen. Major airlines such as British Airways have suspended all flights to and from mainland China.

In the wake of the crisis, it might be a ripe time to consider putting your money in Futures markets. This would be especially necessary if you have invested in global assets with linkages to the Chinese market. Remember that the SARS crisis lasted almost 8 months. At the time China’s role in the global economy was less important than today.

Futures is a derivative financial instrument, a contract to buy or sell the underlying asset on a certain date in the future, but at the current market price. Futures attract investors with their transparency, liquidity, low risks of a transaction and the accuracy of tracking the underlying asset. Futures provide several other advantages.

Fluctuation does not really matter.

Until the coronavirus crisis is considered completely under control, the market will still present some bullish and bearish moments in a very volatile way. Investing in Futures offers you a chance to simply make a contract to buy a commodity at the current price but schedule it to pay at a future date. This way, you are able to escape from the price as well as market variations, as you will pay the same asset at the price previously agreed.

Balance Your Portfolio.

Investing in Futures offers you a secure option and ability to balance your portfolio without worrying about price variations for a certain period of time. Whether things go well or worse, your locked price remains the same.

If you are a more risk-averse person, this should be your strategy. OPEC plans to extend current oil output cuts from March until at least June, with the possibility of deeper reductions if oil demand in China is significantly impacted by the spread of the virus. This might affect oil commodities as well as other metals exported to China such as copper. In fact, copper prices have been falling since the outbreak of the virus, reaching a fourth-month low this week, on fears of an economic slowdown in China, which is the world’s top metals consumer. We can expect the demand and consequently the price, to start rising once the crisis has stabilized.

Investing in commodity Futures Contracts provides investors with the benefit of time, with or without the benefits of market price valuations.

However, the downside of investing in Futures is that of speculation. With speculation, it can be challenging to determine how much, over time, a commodity, stock, bonds etc. will be worth in the volatile market. A good example is the European Futures market which registered an increase of 0.22% and Chinese stock Futures in Singapore which rebounded from two days of losses to rise to 1.79% on 28th January.

While it’s mostly institutions, hedge funds and wealthy investors that trade in Futures, anyone with the money and appetite for risk can explore opportunities offered by the Futures market. At Investors Europe (Mauritius) Ltd, we offer Futures as one of our products. For over 20 years, we have supported institutional traders and High Net Worth Individuals (HNWI) in investing in Futures assets.

With the uncertainty surrounding the impact of the coronavirus on the global economy, you might want to consider investing in Futures Contracts using one of our trusted wide-selection of online trading platforms. Contact us today to find out about which options we can offer to you at +230 54490369 or trading@investorseurope.com.

Choose one or several trading platforms and achieve your goals with Investors Europe

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