2020 is about to end and there are many doubts that plague investors. What will happen in 2021? Will markets rebound or will there be new 'surprises'? And will the world economy rebound everything expected or will the outbreaks of Covid-19 deal another blow? With this panorama, the experts have begun to make their recommendations, and from AJ Bell They point out that there is five key questions that cannot be lost sight of.
"Investors have to think ahead, as markets are constantly looking to quote or discount events before they occur and have multiple cross currents to consider in 2021These are the words of Russ Mold, chief investment officer at AJ Bell, who believes that after the 'game' that markets have experienced in 2020 as they went from panic over the pandemic to optimism over vaccines and recovery, now is the time to Think about the key trends in the "next twelve months and beyond."
They are as follows:
1. Central banks
"The markets are increasingly under pressure from the decisions of the monetary authorities"says the strategist, who recalls that to overcome crises, central banks have opted for "ever deeper cuts in interest rates and for ever greater amounts of quantitative easing (QE)". He believes that promises that QE is a temporary or emergency measure, or that the bonds purchased will be sold have been forgotten, and now all investors are wondering is "how much more stimulus will central banks add, under whatever acronym or disguise they choose, and what effect they will have on savings, inflation, economies, and asset prices. "
"Nobody really knows, but although central banks may feel that they have failed in their attempts to stoke growth and inflation, it can be said that they're doing a lot to boost asset prices"says Mold. And it is that global stocks are" feasting "on cheap liquidity provided by the programs of the Bank of England, the Bank of Japan, the European Central Bank (ECB), the Swiss National Bank and the Federal Reserve (Fed).
In AJ Bell's opinion, "for better or for worse, central banks are likely to remain in the spotlight in 2021, especially as they seem to be building a consensus that they want to let inflation skyrocket after years of not getting inflation to hit their 2% target. "
2. Offer of money
Faced with difficult decisions that had to balance the physical, mental and financial health of their respective populations, central banks and governments have acted in the way they deemed best to provide support during the pandemic and closures.
Mold remarks that as a result of zero or negative rate policies, different QE programs, and initiatives like state-guaranteed loans, "there is a lot of new cash that is making the rounds." This, he says, does not guarantee that raise inflation, because for that "the speed of money is also required." However, AJ Bell believes that "if banks start making loans (of their own free will or at the behest of governments) or if food and fuel prices rise and workers start demanding more wages (and then spending them ), still there could be an inflation surprise".
3. 'Value' versus 'growth'
AJ Bell also points out the eternal confrontation between 'value' and 'growth' as another of the key themes of 2021. "Rising unemployment is a strong argument against the thesis that advocates higher inflation, and sustained inflation would still come as a big surprise to many if it developed, especially after more than a decade of low growth, low inflation, and zero interest rates The play for investors in this environment has been fairly straightforward: buy long-term assets, buy bonds, buy growth stocks (like technology), and forget about raw materials, forget about 'value' titles and forget about emerging markets, "says Mold.
That's why you think if there is inflation, "the playbook would have to be reversed, at least if history is any guide and as long as we don't go back to the rampant price rises of the 1970s. "" If there's a dose of inflation, cyclical and value stocks, emerging market stocks and commodities – all short-lived assets – could be strengthened at the expense of other long-lived assets such as bonds and growth stocks, "says the expert.
Indeed, AJ Bell has already seen "subtle signs that investors may be positioning themselves for this shift" from secular growth to cyclical growth, or from 'growth' to 'value' in terms of investment style and stock selection.
4. Technological actions
Technology has been the great support of investors in 2020, helping them, as it has also helped consumers and businesses, to cope with the pandemic, closures and new work environments. "Any continuation or acceleration of this subtle shift from growth to value could have big implications for investors' portfolios and their asset allocation strategies"says Mold.
"Even if the trend continues, that does not necessarily mean that technology is going to crash"." The influence of FAANG -Facebook, Amazon, Apple, Netflix and Google- has been huge in helping to raise the S&P 500 in 2020. In the last year they have added 2.1 trillion dollars in market capitalization, or two-thirds of the total value gain of the S&P ", says AJ Bell, who believes that if the increases are exhausted, weighed down by the own valuations, regulatory pressure or even disappointing earnings, then "investors may face a difficult choice in terms of country, sector and stock selection."
5. Gold and bitcoin
"There's a school of thought that says buying what's popular is not a recipe for getting it right, and you could say this has worked in 2020," says expert AJ Bell. Because neither gold nor bitcoin attracted much attention earlier in the year, but both have had a good year and hit new all-time highs.
Many believe that still much remains to be seen in both gold and bitcoinEspecially if governments keep piling up debt and central banks do their best to finance those loans out the back door with QE, zero interest rates … etc. Although others say that neither gold nor bitcoin have intrinsic value as they do not generate cash. "Once again, In 2021, investors will have the opportunity to choose whether to see bitcoin and gold as stores of value and useful portfolio diversifiers or as troublemakers.", he concludes.