Timur Turlov, CEO of Freedom Holding Corp. comments on the US stock market drivers in 2021.
According to the expert, the U.S.-China relations will be in focus right after the U.S. presidential elections. However, he doesn’t believe that the world will see further escalation of the trade war.
«Let’s be more optimistic. Two countries that have such a big trade volume with each other, such a level of deep integration of their economies will never fight for real,» Turlov said.
All global investing banks wait for market growth. As Goldman Sachs foresees, the S&P 500 index will rise from current 3373 to 3600 by the end of this year, and up to 3800 by the end of next year, the head of Freedom Holding Corp. added.
One of the main drivers for next year will be a soft monetary policy of the U.S. Federal Reserve. On Wednesday the Fed has decided to not change a base rate of 0-0.25%. The U.S. central bank also made it clear that it’s not going to raise the base rate until the end of 2022.
«The Fed is forced to be more tolerant of temporary inflation that is above the target indicator of 2%. If you print out a lot of money, you push inflation to grow,» Turlov said.
Because of these factors, the U.S. Treasury bond yields have fallen to historic lows – almost -1% (minus). Even though the inflation rate is also very low, the Treasury yields do not cover it. And this is a very powerful driver for the stock market, the head of Freedom Holding Corp added.
Another factor is vaccine development. If pharmaceutical companies will get some good progress, all businesses that have a direct correlation with the current situation, for example, hotels, airlines, banks and others, will re-emerge. However, even leading analytics do not know how long the pandemic will last, Turlov noted.
The capital flow also supports the U.S. stock market growth.
«All retail brokers and fund managers report about a huge amount of money that flows into the stock market. It makes no sense to sell shares or short sell when such a big capital comes right into your hands,» said Turlov.
As the expert noted, the monetary policy in Russia and Ukraine was recently softened. The base rate in Russia is 4.5% (3.5% in case of inflation); and 6% in Ukraine (2.4% in case of inflation).
According to Turlov, Kazakhstan is likely to follow this path and lower the base rate that currently is 9% with interest rate collar +/- 1.5 percent points.
«In my opinion, Kazakhstan has to follow the same way and to increase market incentives. Perhaps we won’t see the current interest rate of 9.5% in tenge or bond yields of 15-16% next year. I am almost sure that the base rate will decline in the next twelve months,» the head of Freedom Holding Corp. said.
KASE index has already bounded after a sharp decrease due to the pandemic. In the period since February 20 to March 16, KASE index fell by 14.25% to the level of November 2017. However, later it bounded to 19.6% and set a new maximum for the year.
«Most of the companies the KASE index consists of are the key businesses for country’s economy.They work with commodities and that’s why they weathered the crisis so well,» Turlov noted.
On Friday the KASE index increased to 2.474. In August it reached its year’s maximum.
The U.S. stock markets declined instead after negative jobs reports. On Thursday S&P 500 index declined by 0.8% to 3,357 points; Nasdaq has fallen by 1.3% to 10,910. Dow Jones Industrial Average slid by 0.5% or 130 points to 27,902.