With 2020 behind us, investors are turning their attention to new investment opportunities and strategies. In this article, we will look at some investment trends for the year that has just begun. So what are the 2021 investment trends that will impact the market?
The UK government has reached a trade deal with the European Union, thus avoiding a no-deal scenario. While details of the deal remain sparse, the trade deal is welcome. Question marks remain, however, over, for example, the UK’s ability to sell services, including advertising, legal and financial services to EU countries.
Although uncertainty for the UK economy is reduced, trading between the UK and the EU will not be as easy as it was before Brexit; new non-trade barriers such as customs controls and additional import-export formalities are necessary. This agreement nonetheless reduces economic uncertainty by removing the risk of a disruptive no-deal scenario.
Following the Brexit deal, the pound should appreciate mainly against the euro now that the risk of a no-deal Brexit is finally over. The UK stock market is cheap compared to global equities: Non-UK investors have largely avoided investing in UK stocks since 2016, given the lingering Brexit-related uncertainty that persisted after the referendum. The UK stock market has historically traded at a slight discount to global equities, given its lack of growth stocks and its larger weighting in favor of commodities and financials. While the first quarter performance on UK equities will be affected by the new imposed lockdown, we could see an economic rebound for 2021 as a whole.
In the United States, the elections brought a lot of volatility to the markets. Much has been written about President-elect Joe Biden’s plan to raise taxes on the wealthy and its potential impact on stocks. However, the market reacted favorably to Biden’s victory. Now that the US Senate has a Democratic majority, green energy and international trade are more likely to be at the forefront of this presidential term. Another booming sector that will benefit from Biden’s victory is the electric vehicle sector.
With the deployment of the vaccine, it is certainly the beginning of the end of COVID-19. At the same time, markets will be watching for additional stimuli to provide a lifeline for small businesses and consumers until vaccines really start to slow the spread of the virus. How quickly the pandemic subsides will have huge macro-business impacts, and these will affect all investment sectors.
If the pharmaceutical industry manages to bring COVID-19 under control in 2021, it will be a triumph for science. Public companies involved in the effort will be generously rewarded.
Many other sectors are expected to jump if the world begins to return to normal in 2021. Increased travel demand could lead to high prices for airlines, hotels and even cruise lines. The travel industry employs 144 million workers.
One sector that will remain in the spotlight is tech stocks, which had a great year in 2020. Working from home and social distancing are part of the new normal, and as a result, tech will always be in demand in 2021. Consumers are also more eager to buy online, as they prefer to have their goods delivered to their doorsteps, further fueling investment in technology.
Precious metals ended 2020 on a positive note: December proved to be a strong month for precious metal prices, with gold gaining 7%, silver 17% and platinum 11% on the dollar month. The key drivers remain in place for strong precious metal performance in 2021, namely very low long-term real yields and strong money supply growth. The 10-year real yield in the United States fell to an all-time low below -1%, while it is even lower at -1.5% in the euro zone. Both of these factors point to a positive outlook for precious metals.
Equity markets remain bullish, helped by rising inflation expectations: ultimately, equity markets are driven by a combination of earnings growth and the expansion or contraction of valuation multiples. The valuation multiple is largely determined by real long rates, which remain buoyant. The forward-looking consensus earnings forecast continues to recover, helped by very positive earnings surprises for the third quarter of 2020.
The main risk to the positive stock market momentum is the risk that further lockdowns will hurt corporate earnings expectations for the first quarter of 2021. However, while we remain hopeful that the vaccination process is accelerating, the outlook should be positive. for Japan, emerging markets and European equities, including Britain.
This article was prepared by Adrian Mifsud, Cefa, Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article is not intended to provide investment advice and its contents should not be construed as such. The company is authorized to provide investment services by the MFSA and is a member of the Malta Stock Exchange and a member of the Atlas Group. The directors or connected persons, including the company, and their customers are likely to have an interest in the securities referred to in this article. Investors should remember that past performance is not indicative of future performance and the value of investments can go down as well as up. For more information, contact Jesmond Mizzi Financial Advisors Limited at 67 Level 3 South Street, Valletta, 2122 4410, or email [email protected]
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