2021 Investment Trends

With the 2020 behind us, investors shift their attention on new investment opportunities and strategies. In this article we will look at some investment trends for the year that just started. So, what are the 2021 investment trends that will impact the market?

The UK government agreed a trade deal with the European Union, avoiding a no-deal scenario. Whilst the details about the agreement remain scarce the trade deal is welcome, question marks remain for instance over the ability of the UK to sell services, including advertising, legal and financial services to European Union countries.

Although uncertainty for the UK economy is reduced, trade between the UK and European Union will not be as easy as it was pre-Brexit, new non-trade barriers such as customs checks and extra import -export paperwork are required. This deal nevertheless reduces economic uncertainty by removing the risk of a disruptive no-deal scenario.

As a result of the Brexit deal, the Pound should appreciate mainly against the Euro now that the risk of a no-deal Brexit has finally been eliminated. UK stock market is cheap relative to global stocks: non-UK investors have largely avoided investments in UK stocks since 2016, given the ongoing Brexit uncertainty that lingered post referendum. While the UK stock market has historically traded at a modest discount to global stocks given its lack of growth stocks and heavier weighting towards commodities and financial services. While Q1 performance on UK equity will be impacted by the new lockdown imposed, we might see an economic rebound for 2021 overall.

In the US, election has brought a lot of volatility in the markets. Plenty 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 Democrate majority, green energy and international trade are more likely to be on the forefront of this presidential term. Another sector which is booming and will benefit from the Biden win is the electric vehicle sector.

With the rollout of the vaccine this is certainly the beginning of the end of Covid-19. At the same time, markets will be watching additional stimulus to provide a lifeline for small businesses and consumers until vaccines really start to slow the spread of the virus. How quickly the pandemic fades will have enormous macro-commercial impacts, and these will hit every single investment sector.

If the pharmaceutical industry manages to get Covid-19 under control during 2021, it will be a triumph for science. Public companies involved in the effort will be handsomely rewarded.

Plenty of other sectors are set to jump if the world starts returning to normality in 2021. Increased demand for travel could drive airline stocks, hotels and even cruise lines to high prices. The travel industry provide employment to 144 million workers.

A sector which will remain in focus is the tech stocks, which had an excellent year in 2020. The working from home and social distancing are part of the new normal and therefore technology will still be in demand in 2021. Consumers are also more eager to buy online, as they prefer to have their goods delivered at their doorstep which fuels more investment in technology.

Precious metals ended 2020 on a strong note: December proved to be a strong month for precious metal prices, with gold gaining 7%, silver 17% and platinum 11% over the month in dollar terms. The key drivers remain in place for a strong precious metals’ performance in 2021, namely very low long-term real yields and high money supply growth. The US 10-year real yield has sunk to a historic low of below -1%, while it is even lower at -1.5% in the eurozone. Both factors point to a positive outlook for precious metals.

Stock market remain bullish helped by rising inflation expectations: ultimately, stock markets are driven by a combination of earnings growth and a valuation multiple expansion or contraction. The valuation multiple is largely determined by long-term real rates, which remain supportive. Forward-looking consensus earnings expectations continue to recover, helped by very positive earnings surprises for Q3 2020.

The key risk to positive stock market momentum is the risk that further lockdowns will hurt corporate earnings expectations for Q1 2021. However, as we remain hopeful that the vaccination process gathers momentum the outlook should be positive for Japan, Emerging Market and European equities including the UK.

Adrian Mifsud, Cefa, is an Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]