Each week, a professional investor tells MoneyWeek where he'd put his money now. This week: Gary Thomson, director of sales trading at WorldSpreads.
If you are comfortable with spread betting, it has many advantages as a way to play short-term moves in the financial markets. As well as allowing traders to use leverage, and offering 24-hour dealing facilities, any profits made from financial spread betting are exempt from capital-gains tax. Of course, there are risks to spread betting, in that losses can quickly rack up if a bet goes against you, which is why it's worth using stop-losses and opening a practice account before you plunge right in.
Given current market conditions, it's no surprise that spread betting is growing in popularity. Instead of a particular stock, currency or index, the spread better's best friend is volatility: the vast majority of trades are opened and closed within a week. And right now we are in one of the most uncertain, and therefore volatile, periods in the history of financial markets.
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One of the most popular markets our clients at WorldSpreads like to trade is their home index, so I've taken a look at the prospects for the FTSE 100 for the coming months. As it finally breaks through the 5,400 level after almost four months of trying, it will meet the next serious area of resistance around the 5,800 area.
With the constant media refrain about a double dip and with no lack of economic hurdles ahead, one could argue that a trader should take notice but the truth is that the FTSE no longer reflects the true state of the British economy. Its international nature more accurately mirrors global, rather than solely British, outlooks and opportunities. Whether or not we are to enter a double dip will not become clear until the next quarterly GDP figures in October.
Perhaps of greater importance to the FTSE 100, however, is the continuing ability of China and other Asian economies to maintain economic growth. With this in mind, I would be tempted to buy the FTSE Future on dips, and look to take profits in the high 5,700s.
Trading the foreign currency markets is also becoming more popular. So I'd like to take a look at the prospects for one of the major currency pairs that has real global impact: the euro versus the US dollar (EUR/USD).
The spectre of a double-dip is hanging over the global economy, and particularly over-stretched European banks, which remain among the weakest links in the financial sector. On top of that, jittery investors are primed to react to any hint of problems with sovereign debt and government solvency.
In light of this situation, I think the views of my chief executive, Conor Foley, former head of trading at Paribas, are worth considering. Foley sees a very real danger of one of the 'peripheral' eurozone countries (the pejoratively named PIGS) defaulting in the next three months. With that in mind, I'd be ready to short the euro.
An increasingly popular way to trade various sectors is by using exchange-traded funds (ETF). I like them because they allow me to access a range of underlying instruments such as shares via one position. They're also relatively inexpensive.
We quote a range of ETFs and one of the instruments I keep an eye on is the SPDR S&P Metals and Mining ETF (NYSE: XME). Fears of a hard landing in China have declined since recent data showed that both industrial production and retail sales had grown more quickly than analysts had anticipated in August. I think this could give a fresh boost to share prices in the metals and mining sectors, as fund managers adjust their portfolios to overweight these industries.
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