Investing in European Union

Investing in European Union

Introduction

International investments involve venturing into businesses outside the domestic markets (Vernon, 2015). It helps in minimizing risks and offers opportunities for diversification. Also, it allows investors to capitalize on emerging markets and avoiding domestic economic stress. Furthermore, it will enable investors to expand their return horizons. Before one invests in any given project, the risk management process is critical to make the best investment option. The investor must weigh the returns of such plans or investments against the expected risks. The higher the risks, the better the returns. Another critical item is legal compliance to both international and host country’s legalities (Dolzer & Schreuer, 2012). Financial instruments are commercial contracts that result in a financial asset to one entity and financial liability to another body (Pilbeam, 2018). They can be either in cash or derivative form. Cash instruments include securities, loans, and deposits, while derivative instruments include forwards, options, futures, and swaps. Financial hedging investment entails counteracting potential profits and losses that may be incurred by the investing company. Financial instruments such as forward contracts, swaps, insurance, futures contracts, stocks, and exchange-traded funds aids in financial hedging (Bielecki & Rutkowski, 2013).

Investing in European Union

The European Union (EU) has its policies and regulations relating to international investment (Olsen & McCormick, 2018). As an investor, it is vital to equip yourself with foreign investment policies of the EU before initiating any investment project. The EU is a single market economy, and it is the single market currency, namely the euro as well. Euro currency encourages investors since it enhances financial security, economic stability, and business integration. The EU has no trade barriers, and member states can trade for free, therefore reducing transaction costs. The harmonization of EU standards allows for a safe environment for investing. The EU cartels and monopolists have no place to chip into the business making competition fair for all investors. Harmonization of company law with EU laws helps to reduce administrative upsets on investments, and companies can quickly access funds in the EU. Moreover, the EU has a more extensive market base, which boosts the sales volume of the company. Investor-friendly economic policies of the EU is making it become the investor’s favorite destination globally (Olsen & McCormick, 2018).

The current Gross Domestic Product (GDP) of the EU is at a 1.6 percent growth rate, which shows a significant increase in GDP from the growth rate of 1.5 percent in the year 2019( OECD Economic Outlook). The inflation rate is at 1.693 percent, showing I rise in the inflation rate from 1.551 percent in the year 2019. The unemployment rate in the EU is falling significantly from the rate of 6.3 percent in 2019 to at the current rate of 6.2 percent. The forecast of public debt-to-GDP rate this year is at 79.4 percent, which is the fall from 80.6 percent in the year 2019. The aggregate deficit in the EU is rising, and currently, it is at the rate of 1.1 percent from 0.9 percent in 2019 ( OECD Economic Outlook). The economic statistics of the EU attributes to exchange rates, commodity prices, government policies coupled with EU policies, and interest rates. The anticipation of the EU economic instability due to the uncertainties of Brexit deal negotiation by the United Kingdom (UK) is an important consideration (Clarke et al.,2017). China’s fast-growing economy and trade tension between the US and China are also is another factor to be considered in predicting the economic stability of the EU (Kissinger, 2012). Due to these factors, European sovereign bonds are trading at negative yields. However, exchange rates in the EU remain stable. Due to economic shocks, a recession is likely to happen shortly, affecting the confidence of investors. I would recommend to my client to invest in the EU. Despite uncertainties in the EU, there is an excellent pool of opportunities. The golden rule in investment is the higher the risks, the higher the returns.

Investing in United Kingdom (UK)

The economic growth of the UK is slowing down in 2020. The GDP growth rate in 2020 is at 0.4 percent, showing a decrease from 0.5 percent in 2019 ( OECD Economic Outlook). However, the annual GDP will grow in 2020 to at the rate of 1.7 percent from 1.5 percent in 2019. The unemployment rate in 2019 records at 4 percent, representing an increase from 3.8 percent in 2019. The inflation rate is at 2.5 percent from 1.9 percent in 2019 though per month inflation rate is reducing, and currently, it at a 0.4 percent rate decrease from 0.6 percent in 2019. Interest rates in the UK increasing and are at 0.75 percent representing a significant increase from 0.5 percent in 2019. Government debt to GDP is at 78.2 percent, showing a substantial decrease from 81.3 percent in 2019( OECD Economic Outlook). Business and consumer confidence are increasing significantly from -14 and -6 in 2019 to -2 and -2 in 2020, respectively, while the corporate tax rate remains at 17 percent. Slow economic growth in the UK attributes to the global trade tensions and Brexit related uncertainties. Business and consumer confidence are picking up, although it is still negative. The increases are as a result of Mr. Boris Johnson winning the elections and announcing no-deal Brexit. I would not recommend the investor to set up an investment in London currently until no-Brexit deal negotiations finalize since there are a lot of uncertainties that are difficult to predict.

Investing in the United States (US)

The economy of the US is growing moderately. The GDP will drop from 2.3 percent in 2019 to at the rate of 1.9 percent in 2020 ( OECD Economic Outlook). The unemployment will remain below 4 percent in 2020, while the inflation rate will increase to 1.8 percent in 2020 from the rate of 1.6 percent in 2019. The business fixed investments were decreasing slightly to 2.5 percent in 2020 from 3.0 percent in 2019. The long-term interest rate is falling slightly as well to 2.85 percent in 2020 from 2.75 percent in 2019, while the short-term interest rate was edging down to 2.55 percent from 2.6 percent in 2019. The trade-weighted US dollar will rise to 2.3 percent in 2020 from 1.5 percent in 2019 ( OECD Economic Outlook). I will encourage my client to invest in the US market because the US interest rates are reducing while the trade-weighted US dollar is increasing as well as the economy is growing steadily.

Investing in Canada

The economy of Canada is growing, and the GDP was expanding at a rate of 1.8 percent in 2020, from 1.7 percent in 2019. The growth is a result of the increase in consumer spending and active labor markets. The increase in GDP will help Canada avoid the looming economic recession in 2020. The interest rate remains at a rate of 2.75 percent. The economy is rapidly growing in Quebec, and British Columbia and real business investment are increasing at the rate of 1.5 percent from 1.0 percent in 2019 ( OECD Economic Outlook). I would recommend my client invest in Canada to utilize opportunities brought by the growing economy, which will be robust soon.