Theses classified according to the probability of occurrence
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Positive outlook – thesis No. 1: Gigantic Russian aid package
As the whole world looks at the stalled negotiations between Democrats and Republicans over the US aid package, Russia is creating facts. Russia is benefiting from its low national debt, which at the end of 2020 was just 19 percent of GDP. Russia is now launching an aid package that also far exceeds the packages from Japan, the USA and Germany. The Moscow stock exchange reacts with a jump of joy. Probability of occurrence: 30 percent.
Positive outlook – thesis No. 2: Peace and price gains in Israel
Immediately after his inauguration, Joe Biden gave full throttle to foreign policy. Through his mediation, Israel and Palestine conclude a peace agreement. This also attracts many new investors to the Tel Aviv Stock Exchange. The leading index TA-35 there is up 30 percent, marks a new all-time high and will become one of the strongest indices worldwide in 2021. Probability of occurrence: 25 percent
Positive outlook – thesis No. 3: Brazil, soybeans and vegans
Vegan nutrition is becoming a megatrend. Brazil – already the world’s largest exporter of soybeans – is expanding its supremacy even further. Brazil doubles its soybean exports, serving 66 percent of the world market. In the last battered economy on the Sugar Loaf, this leads to a welcome boom. The real is recovering, the stock market is flying above its all-time high from 2019. Probability of occurrence: 20 percent.
Positive outlook – thesis No. 4: Outperformance in Vietnam
Vietnam got through the Covid-19 pandemic with comparatively few cases. This advantage over other Asian countries is now being used. Investments are made in the economy at an early stage. Vietnam is chasing large market shares from other Asian countries and is becoming the world’s largest exporter of shoes. Vietnam is working its way up to fifth place for textiles. The result is an impressive economic boom. The Vietnam Stock Index climbs 50 percent, pulverizing its all-time high from 2018. Probability of occurrence: 15 percent.
Positive outlook – thesis No. 5: Croatia as a holiday and stock exchange country
Even in 2021, many vacationers will forego air and long-distance travel. Croatia is more fashionable as a travel destination than ever before. This gives the Croatian economy a momentum that was hardly thought possible. The Croatian economy will surpass its pre-crisis level as early as 2021. The stock exchange in Zagreb is experiencing a real fireworks display. The plus of 30 percent is enough for a new all-time high. Probability of occurrence: 10 percent.
Positive outlook – thesis 6: British success
The UK economy is returning to its former glory following the last minute EU-UK deal on future relations. Jobs that were initially relocated due to Brexit are now increasingly returning to London. The economy is booming, inflation is rising and the currency is appreciating significantly. The Bank of England is the first central bank to stop its bond purchases and even increase interest rates. Probability of occurrence: 5 percent.
Risk thesis No. 1: stock market slump despite profit increase
Corporate earnings are recovering after the pandemic, albeit at a somewhat slower pace than investors and analysts expected. The already high ratings can no longer be justified. This hits the small and mid caps particularly hard. The forward KVG of the German small cap index MDAX is falling only very slowly from the current record high of 161. In the USA, the forward KVG of the Russell 2000 is stagnating at the currently expensive value of 73. Investors are frightened and parting with Small in droves – and mid-cap papers. The wave of panic is also spreading to blue chips. The next big crash on the stock market is coming. Probability of occurrence: 60 percent.
Risk thesis # 2: Chinese private investors and the stock market collapse
China is initially steadily continuing its recovery course after the pandemic. Private investors are in a good mood and are investing ever larger amounts in the stock market. The bigger the profits, the more stocks are bought on credit. The margin deposited as security for loan-financed share purchases has already doubled between 2019 and 2020 to its highest level since the crash year 2015. Now it continues to rise and finally exceeds the historic high of 2015. When a 5 percent setback occurs on a turbulent stock market day, the first automatic stop sales are triggered. Then the limits fall like dominoes. Virtually all stocks bought on credit are forcibly sold. The local A-shares collapse by 50 percent. Probability of occurrence: 50 percent.
Risk thesis No. 3: Turkey on the verge of insolvency
Turkey remains in crisis mode. Tourism is only recovering very slowly. This in turn leads to persistently high unemployment, a very slow recovery in gross domestic product and a persistently high budget deficit. The higher interest rates can slow the lira down but not stop it. In the second half of the year, you have to pay 11 lira for one euro. At the same time, inflation is imported via imports. To repay the dollar bond due in March, further gold reserves are thrown on the market. The repayment of the two euro bonds due in December brings Turkey to the brink of an IMF aid program. Probability of occurrence: 40 percent.
Risk thesis # 4: Eurozone and deflation
Although the ECB once again stepped up its bond purchase programs in December 2020 and life in the euro zone is increasingly normalizing with the advancing vaccination rate, the euro zone is stuck in inflation. At the end of the first quarter, inflation was -0.6 percent, setting the historic lows. The ECB reacts with a further increase in its purchase programs. All limits related to the maximum purchase quotas will be abolished. The monthly net purchases by the ECB will be increased in several steps to 120 billion euros by the end of the year. The ongoing deflation is leading to an ever stronger appreciation of the euro up to 1.55 US dollars. As a result, raw material imports in the eurozone are becoming cheaper and cheaper, which increases deflation. In order to stimulate lending and consumption, the ECB is lowering its key interest rate to -1 percent. This prompts the banks to pass on penalty interest to their customers from the first euro in credit. At the same time, the ECB is lowering the upper limit for cash purchases to 50 euros. Probability of occurrence: 30 percent.
Risk thesis No. 5: Scandinavia as the epicenter of a new earthquake
The Scandinavian countries Norway, Sweden and Denmark, which are actually considered solid, will become problematic and trigger the next crisis. After the pandemic, unemployment will remain above pre-crisis levels. This in turn puts the heavily indebted households in distress. While household debt in Germany is 87 percent of GDP, it is many times higher in Denmark (263%), Norway (223%) and Sweden (182%). Loan defaults occur. The banks distrust each other, the interbank market is drying up. New loans are rarely granted. Scandinavia is slipping into a deep economic crisis. Contagion effects quickly emerge, first in the European, then also in the non-European banks. Probability of occurrence: 20 percent.
Risk thesis # 6: Central banks’ gold sales
Other international central banks are following Turkey’s example and throwing gold reserves on the market. The motives for this are different. Some of the central banks want to realize profits on the gold reserves in order to offset losses from the negative yielding bonds in their portfolio. Other central banks use the proceeds from the sales to buy more bonds. A third group passes the proceeds on to the Ministry of Finance in order to repay due bonds in foreign currency. As a result, the gold price has slipped by a third and, at 1,200 US dollars per troy ounce, is as low as it was last in 2018. Probability of occurrence: 10 percent.
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