Traders work on the floor of the New York Stock Exchange (NYSE). With a tumultuous 2020 now in the rear-view mirror, and 2021 well into its first month, analysts view that investors are positively set to reclaim all of last year’s portfolio losses. Image Credit: Reuters

Dubai: With a tumultuous 2020 now in the rear-view mirror, and 2021 well into its first month, analysts view that investors are positively set to reclaim all of last year’s portfolio losses in the months to come.

“After a year of extremes, with the fastest fall and strongest ever rebound in the history of global markets, investors are looking ahead with justifiable optimism,” viewed industry experts at First Abu Dhabi Bank (FAB), the UAE’s largest bank, in its ‘2021 Global Investment Outlook’ report.

“Record stimulus, the roll-out of vaccines to combat the coronavirus, and fading geopolitical uncertainty promise to continue to power asset prices upwards.”

Market analysts have widely been of the opinion that as long as central banks around the globe keep pumping money into the system and the economy, stock prices may not fall anytime soon.

2021 – A year of recovery?

“Global markets will begin a clear recovery from the COVID-19 downturn during 2021, but this will start with a move towards stability rather than acceleration,” noted Alain Marckus, Managing Director and Head of Investment Strategy and Investment Management for FAB’s Personal Banking Group.

Emerging markets were particularly impacted by the pandemic, but the report noted that currency devaluations, along with massive fiscal and monetary stimuli in some of the biggest developing economies, suggest emerging markets may be in good shape for a period of gains.

“An overvalued US dollar is also likely to weaken further than its recent falls during 2021, partially as a result of a reversal in many of the haven-seeking flows that drove investors into US assets earlier last year, which should also support emerging markets and commodities.”

How recovery will look like?

The rate of the global economic recovery relies heavily on the course of the COVID-19 pandemic. With the COVID-19 pandemic still looming, global economic activity could unfold any number of ways this year.

“Developed economies including the US and Europe will feel continuing effects from cautious consumer spending, higher rates of unemployment following the pandemic, and business restructuring,” the FAB analysts wrote.

Depending on the spread or containment of COVID-19, the pace of vaccine dissemination over the next two years, and the level of global financial stress, multiple outcomes are possible.

“The UK will also contend with the full impact of Brexit and its departure from the European Union,” the report further noted.

Profit indicators stretched thin

The PE ratio indicates the amount of money an investor is ready to pay for every dollar of a company’s net profit and analysts evaluate that it’s the global liquidity surge that’s pushing stocks and markets to record valuations, which is an indicator that is also currently looking stretched too thin.

So, if global liquidity continues to remain at an elevated level, then chances of a correction in markets will also remain low. Moreover, analysts add that good quarterly results by corporates are also supporting prices.

The flood of liquidity is the result of the concerted efforts of central banks around the world that opened their financial war chest to support their country’s economy as the pandemic ravaged across the globe.

UAE to stage record rebound

FAB’s predictions for the UAE include signs of an imminent improvement for incoming tourism, as pent-up travel demand and the country’s successful management of the COVID-19 virus converge to make the UAE a potentially top destination this year.

“The Dubai EXPO’s rescheduling to open in October 2021 will add further strength, and an improvement in tourism will have a positive effect on other sectors, including retail and real estate activity, as the COVID-19 immunisation programme moves forward,” FAB analysts noted.

After a year of extremes in 2020, the FAB report suggests a V-shaped recovery is possible for the UAE, with the sharp contraction of the past year followed by a steep increase in activity as the economy emerges from COVID-19.