Element ONE


Issuer: ELEMENT ONE LTD 
ISIN Number: VGG299771086
Issue Description: USD CL B SHS
ISO CFI: CICXXX

The broad market index SP500 met 2020 at its all-time highs. The optimistic mood of investors of the past year was influenced by the stimulating policy of the Fed and the “political games” of Donald Trump.

During 2019 the Fed lowered its key interest rate from 2.5% to 1.75% points and increased short-term liquidity in the repo market. In his statements Fed Chairman Jerome Powell emphasized that the Fed does not plan to raise rates in 2020. With this, it can be assumed that in the event of a deterioration in macroeconomic indicators or an increase in geopolitical tensions, the regulator may reconsider its views even towards lower rates.

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Fig. 1. Fed interest rate

Nowadays the US labor market is feeling confident. Unemployment is at its historic low of 3.5%.

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Fig. 2. Unemployment rate

The increase in jobs in December 2019 amounted to 164 thousand. The numbers are slightly lower than the forecast, however this indicator has not gone into the negative zone since the end of 2010.

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Fig. 3. The number of new jobs in the non-agricultural sector

Annual consumer inflation is at a target level of 2%. Since the beginning of the second half of 2019 business activity indices have turned upward. The current economic situation does not cause "hawkish" concerns among the Fed.

The current optimism of investors reflect the events of December 2019. A strong impulse for market growth was given by a turn in the endless trade wars between the United States and China. This is due to the decision of the political authorities of these countries to sign the “phase 1” in January 2020. The introduction of new tariffs was canceled and existing ones reduced, which indicates a qualitatively new level in the negotiations. An additional plus was the statement of readiness to work on “phase 2”. Of course you need to understand that this problem will not have a quick and easy solution. Trade wars and geopolitical tensions always make markets nervous, so any positive agreements on these issues will move the markets up. And if the positive trend in the negotiations continues it will provide significant support to the markets in 2020.

Of course, the USMCA (Free Trade Agreement between the United States of America, Mexico and Canada) will contribute to economic growth. According to Finance Minister Stephen Mnuchin, this will add + 0.7% to US GDP. Mexico has already ratified the USMCA. The US and Canada are expected to ratify the USMCA in 2020.

In November 2020, the US presidential election will be held. The policy of President Donald Trump is focused on the growth of the stock market - from the ability to achieve better conditions in trade disputes to pressuring on the Fed. Trump's victory could provide additional growth for the US stock market.


Risks:

- Disruption of trade agreements and tariff increases: USA
- China;
- US presidential election;
- the possible brewing of the US trade conflict with France;
- US conflict development - Iran


Summary:

There are certain difficulties in the American economy in the form of a slowdown in economic growth, but taking into account the mood of the monetary authorities and the course of the current president, it is quite likely that 2020 will not bring any global upheavals and catastrophes to the US stock market. Most likely, moderate growth with moderate volatility with possible corrections will prevail in the market. Target level for SP500 at the end of 2020: 3500 - 3600 points.


December management results:

According to the results of the month, Element ONE fund increased its NAV by more than 2%, the unit value has grown to the level of USD 1,688.03. In general, the year for the fund's investors turned out to be very positive - the value of clients assets from the beginning of 2019 to December 31 2019 added almost 20% (before deducting fees for success), which makes the past year the most successful in the history of the fund. Despite all of the said above, the Element ONE fund will soon reduce its position in high-multiplier IT companies and shift its focus to dividend stocks. In addition to strategic options for CALL on VIX, in the 1st quarter of 2020, from 10 to 15 percent of ETFs for gold will be purchased as hedging instruments.
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