When we look back at 2020 it will be a year that many of us will want to put behind for various reasons and 2021 is looked at with optimism for many people and businesses.
With that being said, what do investors have to look forward in 2021.
2020 Market Recap
Seeing a rise in major developed world markets and indexes at the end of 2020 brought on by a brighter outlook of 2021 with vaccine hopes and normal economic activity will eventually reform to 2019 GDP levels.
The U.S saw a heavy tech share rise that has lifted the S&P500 in 2020 to a near-record high seeing a 19.75% (as of December 2020) YTD driven mainly by the heavily weighted tech stocks. They saw rises in Amazon of 80.55% YTD, Microsoft 42.76% YTD, Apple 82.20%, Alphabet 36.16%. At times Apple was valued higher than the FTSE 100!
The year has been one of the most volatile for U.S markets in modern history, with the S&P 500 having a sharp 35% drop to recover 20% at the end of the year with much-debated recovery looking more for the markets like a V shape market recovery.
US Market Recap
The U.S went through a number of swings economically in 2020 starting the year with tensions tightening in the trade war. U.S growth stayed at 2-3% (what it should be for any developed country) for the last 5 years. Although, COVID-19 seeing Q2 and Q3 non-farm payrolls rise and employments fall to levels not seen in modern history. Q4 saw these figures reverse. A Biden presidency with a Republican senate saw the markets rise on what looked to be the best outcome for the business. Biden’s, policy promises (based on his policies) less business-friendly than Trump’s with higher tax rates, but will likely see the U.S becoming growing under Biden’s spending on infrastructure and social security policies.
Euro Market Recap
A broader look of the U.S the Russel 2000, is still up 17.43% YTD with the IMF predicting a faster recovery than other developed markets. While over in Europe, that was earlier to lock down than the U.S and more industrial out looking rather than the tech-heavy weighted U.S. The Eurostoxx 50 is -1.56% YTD CAC 40, -2.29%, DAX 1.01% YTD. Europe sees it worries more with the Eurozone struggling to finance the effects of COVID by looking of the way of bailouts and bond packages, plus the 750 Million Euro package coming swiftly to help struggling countries. Although, the IMF suggests that the Eurozone will be one of the latest to recover from being worst hit by the flagging nations such as Spain and Italy (see figure 1 below)
This time, European powerhouse Germany is in no financial position to aid the flagging European countries, with manufacturing and exports halting putting Germany into a recession in Q3.
UK Market Recap
The U.K, having putting Brexit out of focus with COVID-19 with a record Q2 contraction, and COVID layoffs has lead to the government ramped fiscal support and extended furlough schemes. The Chancellor is looking at ways to pay the government spending by Government workers having pay freezes in 2021.
The U.K’s second lockdown is looking bleak on Q4 GDP figures. Next year will hopefully see an upside to the U.K with the fiscal and monetary stimulus and COVID restrictions loosened it is expected a 6% rise in 2021 compared to 2020.
Asia Market Recap
Asia, having dealt more swiftly overall with COVID-19 managing to get most of their country out of lockdown early due to strict measures. Many Asian nations were back to near the full level of economic activity and projected growth by Q3, with the exception of one major economy, India, that is still showing its social equality with mass COVID cases causing a problem within the country.
The virus centre, China, took a strict lockdown and has seen Shanghai Composite up 21.06% YTD with GDP in Q3 expanding 4.9% and analysis seeing 7.7% growth due to export increase and manufacturing demand in 2021 and 5.6% in 2022 this is showing to be one of the least affected nations economical from the virus,
While Asia 2nd and the world’s 3rd largest economy, Japan. What has been stagnant for the last 20+ years has shown promise in Q4 2020 and onwards. in August, saw unemployment reach 3-year record highs, while consumer confidence remains low boding ill for growth. Government spending in Q4 has boosted confidence and growth in 2020, and the outlook in 2021.
With Suga taking over from Abe, in 2020 looking to increase diplomatic relations and trade from Abe, as seen with the first Brexit deal with the U.K but be more central economic focused than Abe, could put Japan more on focus in the markets. But, with heavy electronic and automotive competition from countries such as neighbouring Korea, declining and aging population, and high debt to GDP levels Japan could still be a country on hold although, many an expecting a 2%+ rebound in 2021. The ever stagnant NIKKEI 225 is showing the optimist side is up 16.82% YTD and at 5-year highs.
2021 Market Outlook
Global Growth for 2021, is still dependent on many variables such as rolling out the vaccine and distribution.
A negative outlook is still forecast by many analysts as they are forecasting negative growth for Q1 and slow growth more in Europe (source Fidelity).
Although many predict this should pick up from Q3, Q4 2021 when the restrictions are set to loosen that will have implementations and economic acceleration.
Countries, record bailouts and stimulus packages, will hopefully come to the aid of many struggling developed countries and help bust the 2021 GDP. Although, the full economic stagnation of GDP will be seen in many years to come due to these massive bailout packages.
One optimistic point is low-interest rates have been the saving grace for many countries to implement such drastic packages, allowing governments to borrow more than ever seen before.
My Prediction of The Markets For 2021
As of 2020, it has seen an acceleration in shifts that were already trending. I.E the working from home, this will likely continue and will see the growth of technology companies, to rival platforms such as ZOOM. While office space will become less and high streets deserted. It has seen the causalities of leased high street retailers that were inevetible with the ever-changing demand for online shopping and lesser overhead costs.
This trend I see continuing and reaching into sectors such as Cinema as the rate of attendance has been on the decline for several years. The cinema is charging more for an experience to combat heavily rental or fewer obligations and the cycle continues. While films are opting more to release on streaming services such as Netflix and Amazon. While sectors that have been impacted due to COVID that could see a rise in 2021 Cruise Ships and tours as the lockdown eases more people would want to getaway.
Countries looking in good shape, China, with its growth of 5-6% forecast of 2021, looks one of the best major economies in 2021. I believe that Chinese large-cap stocks are underweighted when looking at U.S tech giants’ market gains in 2020. 2020 saw Asia have the world’s largest trade deal to help ease restrictions and barriers between the nations in the pacific and east Asia. Although the full effects won’t be seen till 2023 and India opting out due to Chinese influence in the region. It does, suggest that China looks in good shape. While, Chinese major tech companies (Alibaba & Tencent) have opened regional branches in Singapore and made Major acquisitions Lazada to try and get into SEA regions such as Indonesia, Thailand. The tech sector looks to expand in all locations with the new work-life culture becoming the norm.
The U.K does have potential, the U.K mid-cap benchmark FTSE 250, I see it as a promising prospect if the U.K reaches a Brexit deal, and negations continue with major nations about trade talks that have seen a glimpse in 2020 with Japan and Canada.
In a Biden presidency, Trump was business-friendly for taxes and wanted to cut red tape for companies. Biden does not have the same agender and wants to increase cooperation taxes. Having a shift for clean energy, I see U.S oil actually being one of the beneficiaries of this (ironically) as short term oil is still a need, and the U.S wanting to be sustainable (not importing oil that costs and is environmentally damaging) on its own oil reserves, having this coupled with high paying U.S jobs and control of supply which OPEC+ disputes that has lead to volatile oil prices in 2020 and an increase of imports & exports and GDP in the U.S in 2021. I see this as a good year for oil. Even though the long term would look more towards sustainable energy.
For Your Portfolio
For a portfolio, I would look more bullish on Euro manufacturing with large-cap equities and Asia large tech, Japan (slightly) over U.S large-cap stocks due to overrated valuations, such as Tesla. The market is arguably overpriced with high P/E ratios and would look for countries that are looking stable in 2021 for your portfolio.
Fixed interest is looking low in both government and cooperates level and in most cases is barely beating RPI inflation figures for most funds. Interest rates are looking to stay low as monetary easing in the midterms is helping to boost spending for many countries.
