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Market predictions and investment resolutions for 2021

Please see below for Invesco’s article on Market Predictions for the year ahead, received by us yesterday 06/01/2020:

Happy New Year! No one wants a year in review for 2020, but here is what I learned from the past year: History may not repeat itself, but it sure does rhyme. What we learned from 2020 is a repeat of the lesson we learned from the global financial crisis (GFC): Central banks are very powerful. They can’t cure viruses and they can’t create jobs, but they can boost confidence and move markets — a lot. That is the big similarity 2020 had with 2009: Central bank intervention mattered, especially by benefiting risk assets.

When I think of the New Year, I think of predictions and resolutions. And so today, I provide you with a little of both.

My New Year’s predictions

1. US-China relations may get warmer. There seem to be two factions emerging among Biden loyalists: “reformists” who want to push China aggressively on key issues and check its power, and “restorationists” who want to restore US-China relations to where they were in the Obama administration. I believe Biden will do what he typically does: land somewhere in the middle. I don’t expect US-China relations to return to what they were pre-Trump. However, I do expect the relationship between the two countries to improve and normalize. In particular, I expect more predictability and less volatility. While Biden may not unwind tariffs immediately, I do expect him to unwind the Trump administration tariffs after a “study” of their impact (which has obviously been negative for parts of the US economy, especially agriculture). The Biden administration will likely be aggressive on specific issues with China and pursue those issues multilaterally — but I expect that to occur within the context of a broader US-Sino relationship that is more cordial because the fortunes of many US businesses are tied to China. The Chinese economy is on pace to soon overtake that of the US, with the timeline expedited due to COVID, which gives China growing leverage. In fact, the Centre for Economics and Business Research recently released its forecast that China will overtake the United States by 2028 as the world’s largest economy, which is five years earlier than previously estimated due to the two countries’ very different recoveries from the pandemic.1 In addition, China has already begun to signal that it would like improved relations with the US. China’s Foreign Minister Wang Yi said in a recent interview with the South China Morning Post that both the US and China have been negatively impacted by the deterioration in their relationship over the past several years, and that US-China relations have come to a “new crossroads” with a “new window of hope” opening.2

2. Developed countries may have a better recovery than they did post-GFC. As COVID-19 vaccines are broadly distributed, I expect the economic recovery to be far more robust and inclusive than the economic recovery coming out of the global financial crisis. I believe the services industry will rebound with greater intensity, benefiting many lower income workers. That doesn’t mean that there won’t be more glitches in distribution — I fully expect there to be. And there will likely be more pandemic-related headwinds, such as the development of worse strains of the virus. However, once a substantial portion of the population is inoculated, I expect the economic recovery to be powerful. 

3. Oil may rise. Given my expectation for a strong economic recovery in 2021 as vaccines are distributed, I also expect demand for oil to increase significantly. I believe this will lead to a substantial increase in the price of West Texas Intermediate crude oil — even if we see a ramp up in oil production.

4. Bitcoin may fall. I know there is a lot of excitement over Bitcoin, but it’s starting to feel a bit like Tulipmania. Bitcoin rose more than 300% in 2020, with much of the gains made in the last few months of the year.3 I continue to believe gold is a far better choice for diversification into “hard assets” and as a hedge against geopolitical risk. Bitcoin might continue to run for a while this year, but I expect it to be volatile and to ultimately disappoint, as it has in the past after strong rallies.

5. The S&P 500 Index may have another double-digit return in 2021. With vaccine distribution beginning, a robust economic recovery anticipated in the not-too-distant future, as well as extraordinary accommodation from the Federal Reserve, I expect a continuation of the stock rally we saw in 2020, albeit with drops and pauses along the way. Better-than-expected corporate earnings should also help.

My New Year’s resolutions

1. Stay invested and well diversified. While I feel very confident about risk assets in 2021, that doesn’t mean there won’t be volatility and sell-offs in the coming year. I believe having adequate exposure to stocks, fixed income, and alternative asset classes is key to building a portfolio that may withstand volatility.

2. Look to Asia’s emerging markets. My outlook is especially bright for the emerging markets countries that have managed the pandemic well, such as China and Korea. These economies have a head start on the robust vaccine-fueled economic recovery that I expect in 2021.

3. Don’t overlook tech. While the economic rebound may result in strong performance by cyclical stocks in sectors such as energy and consumer discretionary, I don’t necessarily expect tech stocks to underperform. I continue to favor adequate exposure to the technology sector, as I believe many tech stocks may continue to benefit from trends that accelerated during the pandemic.

Although nothing is guaranteed for the future as proven by the year 2020, expert insight and opinion like this is a good way of seeing how actions and news developing worldwide could have an impact on the investment markets, and thus highlights good topics for discussion.

Please utilise blogs like these to aid your own informed opinions on what may lie ahead for the markets, but I reiterate that nothing is guaranteed for the future.   

Keep safe and well and all the best for 2021.

Kind Regards

Paul Green


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Jupiter Asset Management Outlook: All change but stay diversified

Please see the below 2021 Covid Impact themed outlook from Jupiter Asset Management:

Looking to 2021 and considering the lasting impact of Covid-19, the mountains of debt left in its wake and how stock and bond investors have differing views. Through it all, long-term investors, commensurate with their risk appetite, are best served with a diversified portfolio.

As the year closes, equity indices, especially those in the US, are chasing all-time highs. That could have been written a year ago. What a year! Who would have thought within three months of writing the 2020 outlook, the world would be turned up-side down by Covid-19, entire populations would be locked down, the global economy would be comprehensively trashed, central banks and governments would have to make the most significant monetary and fiscal interventions in history to keep the show on the road and by the end of March, global indices (including the technology-heavy NASDAQ) would have lost a third of their value? Therein lies the inherent risk of writing crystal ball-gazing ‘outlook’ pieces!

But taking the plunge, what of the future? Covid-19 will still be dominating events in 2021. With much of the western world battling a second or third viral wave at the end of 2020, the various pipeline vaccines cannot come too quickly for some semblance of normal social behaviour to resume. Not surprisingly markets reacted strongly to the Pfizer/BioNTec vaccine announcement. But post-vaccine ‘normal’ will not be pre-Covid ‘normal’; too much water has passed under too many bridges. GDP growth will recover, but national balance sheets are a mess and eventually the burgeoning debt mountains are going to have to be tackled, though whether through growth, inflation, taxation or austerity remains a moot point.

The Politics of Covid

But change is perhaps more profound. Like it or not Covid has become deeply politicised; many see it is a catalyst for a different future. In many ways it is easier to predict what the future will not be rather than what it will be. There is no re-set button and we simply erase 2020 as if it never happened; societal norms are shifting and moreover they are expected to shift. It extends to the corporate world where stakeholders with their invested human, regulatory or commercial capital are increasingly prioritised over shareholders and their financial capital.

From an investment standpoint, superficially equities have withstood much bad news and uncertainty albeit with a strong dose of volatility. However, there has been a pronounced bifurcation in performance between ‘growth’ companies and the Covid winners, and everything else. So-called ‘value’ companies have been out of favour for a considerable time but as economies begin to recover, perhaps those which are economically sensitive will enjoy an enduring period in the limelight again.

‘Hard-Nosed Pragmatists’

If equity investors are optimists, bond investors are hard-nosed pragmatists, if not pessimists. As lenders, whether to treasuries or companies, they have only two preoccupations: first, will they get their money back on the bond’s redemption date and second, are they being adequately compensated over the duration of their investment to reflect the risk the borrower defaults. Near-term the inflation risk remains benign thanks to slack economies and surplus capacity. As national governments’ Covid recovery extend-and-pretend support schemes eventually recede and the oversupply of labour and capital narrows as economic recovery progresses, opinion is divided whether accelerating money supply through longer-term strategic fiscal stimulus packages risks inflationary pressures to which central banks feel the need to respond with higher interest rates. The past decade suggests structural deflationary pressures may have the upper hand.

Alongside the shifting sands created by Covid, ramifications also weigh from Brexit and the US election. But in this complex environment awash with uncertainties, we believe long-term investors, commensurate with their risk appetite, are best served with a diversified portfolio comprising different asset classes and geographic exposures, as well as blending different investment styles.

This is another one of the many 2021 outlooks we have shared recently from a number of different fund managers, this time with a main focus on the impact of Covid.

Over the course of the next year, as the pandemic reaches its end point as the mass vaccination programme is rolled out, we will see what the lasting impact really is.

Please keep checking back for more outlooks and blog content from a variety of fund managers and our own input.

Andrew Lloyd