Dubai: With the announcement of the success of a few prospective vaccines, the COVID-19 scare is evidently subsiding. In most economies, recovery has begun as businesses reopen. Broad job market trends, factory output and inflation numbers are indicating that recovery is taking shape in most economies.
The damage, the virus has done to many countries will take time to heal, but the confidence that the newly announced vaccines can bring to businesses and markets will be huge and this, analysts opine, will get reflected in the asset prices across the board.
In this article we discuss how the return of investor and consumer confidence, recovery in industry-wide factory production and consumer consumption, comparatively more hiring done now when compared to the peak of the pandemic crisis, can help investors’ spot new themes or trends to base their investment decisions in a COVID-free world.
Investors and market experts alike view the gradual rebound as positive, but analysts also weigh there is a downside to this recovery phase in the form of stress on liquidity as stimulus (economic cash injection). It is, however, unlikely that this currently seen vaccine-induced positive market support will be withdrawn overnight.
Finding the next big trend to invest
Investing in trends is a proven way to make money if you’ve got a long timeline and a stomach for risk. When thinking about stocks, many investors look to the mega-cap tech stocks that have been delivering over the past few years— but jumping on that bandwagon now means you’ve missed out on the hyper-growth stage that happened years ago when the industry was still relatively underdeveloped.
If investing for the long-term is the goal, a good place to start is by examining macro trends and the industries they benefit. From there, investors have to choose companies they think have an edge and will outlast their competitors. But if you’re looking for the next Amazon, you first have to identify the next big global shift.
While all would hope it were sooner, according to the latest research, a vaccine could be available as early as next year. Many companies suspended dividends (profit-based shareholder returns) earlier this year and some were explicitly encouraged to, like banks and insurers. However, a few months later, some companies have already started paying dividends again, and in quicker frequency, even in the UAE.
The level of dividends is lower than it was earlier, but the fact that companies have brought them back makes analysts optimistic that they will grow overtime, while further being of the opinion that as more companies regain confidence to pay dividends, investors will return to the stock markets as well.
What do analysts think of 2021?
With the US election largely settled, Goldman Sachs Research has updated its global economic outlook. It is above consensus forecasts for growth in most major economies in 2021. At the most basic level, Goldman Sachs Research views the coronavirus-induced recession to not last as long as initially thought.
Just as the global economy rebounded quickly (albeit partially) from the lockdowns recently, the expectation is for the current weakness to give way to much stronger growth when lockdowns, currently limited to Europe, end and a vaccine becomes readily available.
Investment theme #1: Investors prepare for a higher inflation
Inflation has persistently come in below central bank targets worldwide despite more than a decade of stimulus to revive it. Yet analysts and trend-watchers see three new forces that may lead to a higher inflation regime than what many investors are currently expecting.
Inflation has been missing in action after more than a decade of cash injection measures and ever-expanding central bank balance sheets. Why, then, would inflation become an important investment theme over the next five years, or indeed, ever again? Because three new forces are at play.
Analysts constantly warn how production costs are set to rise globally. Central banks are fundamentally changing their rules with the intent of running inflation above their targets. Once higher inflation appears, it’s likely going to be too late for investors to react – markets may have already moved to price in higher inflation expectations.
Current breakeven inflation rates suggest this has not happened yet, opening a window of opportunity for long-term investors relative to analysts’ inflation expectations. Analysts prefer inflation-linked bonds and alternatives for potential diversification and sources of resilience.
Investment theme #2: Another chance for pre-owned goods
Call it second-hand, vintage or good-as-new, this year matter experts reveal how the investment world is realising the huge potential of the reuse/reduce/recycle bandwagon. From a global perspective, surveys are indicating how a quarter of the people surveyed want to be more eco-conscious following the coronavirus lockdown. In a recent survey, almost half of them said they will buy fewer clothes, while a quarter wants to recycle more.
As fast fashion becomes increasingly unacceptable, there’s money to be made in ensuring that second-hand pieces reach the consumers who want them, and the companies with the technology to do this could win big.
With a US-based second-hand clothes group ThredUp forecasting that the market for resale fashion is expected to reach $51 billion (Dh187 billion) in five years, analysts expect the world to follow where the US goes, with more specialist apps and sites for second-hand wear.
Investment theme #3: Prepare for impact investment
Climate change and Greta Thunberg are themes that are influencing investment strategies as well – and this year many big investment firms and investors are taking notice and making investment decisions or bets based on them.
According to UK-based asset manager Schroders, three-fifths of all investors want fund managers to consider sustainability, while the same number believe they can help contribute to a more sustainable world by choosing the right investment products.
While there is also a growing trend wherein fund managers scramble to insert words such as “sustainable” and “environmental” into their fund names without really changing the mix of investments, analysts view investors finding products that match their green credentials becoming more readily available.
Many governments are already working on better classifications for green funds, which could help customers to dig deeper into the holdings that “sustainable” funds feel are acceptable and it’s being flagged widely that investors expect both new green launches, and more environmental scrutiny of existing “green” funds in the coming year.
Investment theme #4: An electric vehicle revolution
The pace of change within the auto industry is dizzying, and the increased interest in sustainability is already boosting demand for electric cars.
Like 2020, analysts continue to see licences for self-driving cars, breakthroughs in battery technology and increased crackdowns in many areas of the globe on emissions-producing diesel cars.
As well as the cars themselves, there may be breakthroughs in car-sharing apps and the growth of safety and artificial intelligence technology that will fundamentally change our relationships with our vehicles.
For investors, who cashed in on the lift-sharing firms earlier this year, a bit of caution is advised on stocks of new players or companies, as a risk needs to be factored in wherein technology companies have pulled out of the race (as Dyson already has), and winners and losers become more obvious.
Investment theme #5: Investment strategies, tailor-made for you
Want a strategy that knows when you change your retirement plans and adjusts your investment mix accordingly, or a customised fund that meets not only your broad objectives but your exact ethical criteria?
This level of customisation – previously only available to those with a huge pile of cash and a private wealth manager – will increasingly be available at the swipe of a touch screen in the next year or so, several asset managers view.
Financial institutions are already using artificial intelligence (AI) to experiment with a service that is far more personalised, and this, combined with machine learning and computer analytics, has the ability to completely change the investing experience for the average investor.
If the traditional banks can’t do it – and many are battling antiquated back office systems that are holding up the speed of modernisation – there’s little to stop disruptive fintech companies from continuing their meteoric rise. Analysts expect to see them partner with traditional banks on an even larger scale in the coming year.
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