You don’t need a crystal ball to name at least two big investment themes that will impact the markets this year: Brexit and Covid-19. Many people are reluctant to listen, but from an economic point of view, the next phase from now - the medium and long-term consequences of Brexit and Covid-19 – will be very exciting from an economic point of view and should offer some investment opportunities. However, there are other issues to consider at the same time.
The Covid-19 epidemic seems likely to be overcome by the end of this year due to the global vaccination rollout. This will lead to the full opening of local and global economies. Many people are eager to travel again, visit restaurants and other leisure facilities, or participate in cultural or sporting events. Therefore, the relevant industries are likely to benefit massively. You can call this a return to normalcy. Indeed, whilst many countries are still struggling with high infection rates, some countries have lifted restrictions and expect to allow international travel soon.
However, of equal interest are areas which may not revert to the habits of the past. E-commerce, for example – online trading has been booming since the outbreak of the disease. In the future, there should also be significantly more people who work at home at least temporarily instead of going into the office – the crisis has finally shown that this is possible. The same situation can be applied to some areas of education. In short, Covid-19 once and for all shows that digitization can enable radical change, with the correct focus placed upon it. We should see considerably larger investments than before in IT and digital infrastructure.
Since the referendum was held in June 2016 there have been intense debates about how Brexit will affect people’s lives in the UK and continental Europe, the international flow of goods, and certain industries. However, the various scenarios essentially remained theoretical until the transition phase of leaving the EU ended at the turnoff the year: Great Britain is now no longer part of the EU internal market and the customs union. And what we are now experiencing will probably keep the markets busy for many months, if not years: Due to the new trade barriers, some pan-European supply chains are at risk, there are bottlenecks, although the Corona-related lockdown in Great Britain is currently defusing the situation. In addition, due to tariff surcharges, some prices are no longer competitive, so many British companies have had to stop exporting their products to the EU. As in 2020, some British companies will probably relocate their headquarters to an EU country or establish branches in the single market, notably a number of financial firms.
The economic damage to Great Britain is likely to be considerable, not to mention putting jobs at risk. The British public are now also feeling the effects of Brexit in their wallets: Imported goods from the EU are more expensive due to tariffs and food prices are rising. It remains to be seen how big the final sales impact will be for EU companies.
For several months now, crypto currencies have been on everyone’s lips – and will remain so. Of course, that’s because Bitcoin and numerous Altcoins are currently reaching new heights against fiat currencies. In fact, Bitcoin’s value grew to more than $ 60,000, the highest point in its history. However, the deciding factor is that depending on their function, tokens have actually been used or applied, and virtual currencies are increasingly becoming established as a new asset class. The financial sector in particular had historical reservations. The fact is that both private and institutional investors around the world are investing enormous sums of money in cryptos because payment transactions that are independent of banks, governments and authorities appear attractive and could have a future. If you want to invest in a crypto currency, you must first familiarize yourself with the associated risks.
At present, there is much speculation about a potential period of higher inflation in the market. In fact, as governments around the world have launched economic stimulus plans and central banks have injected cheap funds into the market to support the economy that is suffering during the pandemic, many people are waiting for inflation to come. However, due to numerous compensatory and off-setting effects such as a rising savings rate, rising asset prices or the sharp rise in demand for digital offers during the pandemic, the inflationary effect remains to be seen. As a result, it is by no means certain that the central banks will raise interest rates significantly this year. In fact, the Federal Reserve pledged to keep interest rates anchored near zero until inflation rises consistently.
The stock market rallied very quickly after the February / March 2020 crash, and this recovery continues to this day, despite occasional setbacks. This has much to do with excess funding and aid programs. Above all, investors seem to be looking far ahead into the post-pandemic period, for which many are expecting a veritable economic boom. This view may have some merit, especially since there currently seems to be little alternative to the potential gains on the stock markets.
A certain degree of nervousness cannot be denied, and short-term volatility must be expected at any time. Stocks chosen from highly regarded industries generally outperform the market during periods of market turmoil, helping to protect investors’ investment portfolios. In addition to spreading the risks over different low-correlated asset classes, less risk-averse investors can exploit volatile phases for short-term trading and take short positions, provided they have the appropriate experience.
Internationally, the further development of the tense relationship between the USA and China is of crucial importance. Joe Biden, the new US President, moved into the White House in January, and the world is now looking forward to his dealings with Asia’s strongest economic power. The EU’s reactions to Biden’s election in November last year were mostly positive as the former Vice President stands for close political and economic cooperation with Europe.
At this stage of a market outlook, it would usually be appropriate to provide a GDP forecast or a view of similar metrics. The reason why we are not offering this here is not because it is harder to predict this time around– we just think that, from a market perspective, the value of current information is limited. Some economists have predicted, even in the context of recent events, a global growth of 6% in GDP. Then again, the extent to which the economic stimuli that governments and institutions provided and will continue to provide will translate into effective demand, can’t be predicted seriously. It’s reasonable to assume that this support will remain in place as long as it takes. Thus, a scenario of sustained inflation is not necessarily inevitable; in contrast, the shortage of interest-bearing assets, may well persist for some time.