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COVER STORY WHERE TO INVEST YOUR MONEY IN 2021
Investors will face plenty of risk, but also opportunity, during the Year of the Ox in 2021
Where to invest your money in 2021
2020 was a year of disruption for many investors but there is light at the end of the tunnel. Here are eight diverse investment ideas to consider for the year ahead in 2021.
Political upheaval, social unrest, and continuing trade wars marked a tumultuous year for business and investors alike in 2020. And that’s even before the global impact of the COVID-19 pandemic – and the ongoing lockdowns and business restrictions – were factored in.
But while what goes down doesn’t necessarily have to come back up, the overwhelming view of economists and investment managers is that recovery is on the cards in 2021. Fast work on several COVID-19 vaccine options, coupled with a greater understanding of spread minimization techniques among policymakers, has meant many have rung in the New Year with a renewed sense of confidence.
Andrew Tilton, Chief Asia Pacific Economist with Goldman Sachs Research, has told the firm’s Exchanges podcast that he is also optimistic about growth in the Asia Pacific region in particular.
“China – the biggest economy in the region – has already recovered quite a lot, and is now showing growth on a year-by-year basis,” he said, adding that effective vaccination programmes will be provide another kick-start to local markets. “It’s really widespread vaccination that will allow those remaining restrictions to be lifted and have another reacceleration of growth to get back to more or less normal.”
Nigel Green, CEO and founder of independent fintech advisory deVere Group, says 2021 is set to be a year of major investment risks – but also massive opportunity.
“2020 was a year for which nobody had planned,” he said. “This included investors, many of whom were caught spectacularly off-guard by not having properly diversified portfolios, he added. “Looking ahead to 2021, it is likely that investment headwinds will still exceed the tailwinds – but, I believe, that there are also more major investment opportunities to be had in the next year than perhaps in the last decade.”
Whilst we here at Hong Kong Business have no crystal ball, and can’t predict the future, we have talked to some of the leading analysts and institutions from across Asia and around the world. What follows are eight of the most interesting examples from their advice to clients for the year ahead.
Whichever way your investment portfolio heads in 2021, and the Year of the Ox, we wish you all the best of luck and prosperity. Stay well, and invest with care.
Asian equities
When it comes to regional views of the stock markets, Asia is seen as a likely strong rebounder in 2021, according to a wide range of analysts and guidance.
Ronald Chan, Chief Investment Officer (Equities, Asia ex-Japan) for Manulife, describes the investment outlook for the Asia region as “greater than the sum of its parts”. He says robust fiscal and monetary stimulus globally and in Asia allowed equities to recover the worst of the pandemic-
Andrew Tilton
Ronald Chan
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induced downturn, with regional equity indices ending the year with a nearly 19% return in 2020 (albeit with significant volatility across different markets and industries).
He is expecting growth of roughly 5.5% overall during what will still be a period of gradual and uneven recovery.
BlackRock, meanwhile, says the region is well placed to take advantage of the global recovery. “Many Asian countries have been more effective at containing the virus – and are further ahead in the economic restart,” it has advised clients. “We see the region’s tech orientation allowing it to benefit from structural growth trends.”
Schroders is also bullish on Asia, but has a particularly confident outlook for Chinese equities. These have already rebounded faster and stronger than other markets, in line with the “first-in, first out” story of the Chinese economy’s pandemic. “We believe sectors providing exposure to long-term growth themes in the country will continue to outperform. In particular, we like areas including industrial automation, electric vehicles and components, and supply chain localisation,” said Louise Lo, Head of Greater China Equities for the global fund manager, based in Hong Kong.
Asia-Pacific REITs
Many real estate investment trusts (REITs) took a significant hit from the lockdowns of 2020, but several analysts say that gives them strong room for renewal and growth in 2021. Hui Min Ng, Portfolio Manager within Manulife Investment Management, says this is particularly true where “lower for longer” global interest rates are now providing a generous tailwind for property development.
“Moving into 2021, we envisage the macroeconomic backdrop should gradually improve across the region, with significant dispersion in economic growth across the region,” she says. That should create a recovery in cashflows for retail landlords (given the low base of 2020), while industrial REITs are likely to remain stable throughout 2021 “with growth boosted from accretive acquisitions”.
“The main attraction of Asia Pacific REITs as an asset class is the stable, sustainable payout of dividends to investors. While this assumption was challenged in early 2020, the response by governments and central banks helped to stabilise the real estate sector (and) moving into 2021, we believe an improving economic outlook and continued low interest rates should be beneficial for the asset class,” Ng said.
In Singapore, DBS Bank is also confident of the local REIT market, but says mid-cap trusts are offering particularly good value to investors at this time.
“In general, mid-cap REITs are usually able to produce better returns because of their ability to act quicker than large-cap REITs, while also being more financially stable than their small-cap counterparts,” the bank has advised.
“And now, mid-cap industrial S-REITs have ample valuation buffers, while some have also gradually increased their overseas portfolio over the years, making them more diversified.”
Technology
Technology assets, particularly those with exposure to cloud computing and the work-from-home revolution that was a hallmark of 2020, enjoyed a surge in valuations over the past 12 months. While many have predicted that rate of growth to slow down in 2021, some analysts are predicting an unprecedented rally well into the New Year.
Scott Glasser, Co-Chief Information Officer and Portfolio Manager with ClearBridge Investments is one such investor still bullish on big tech. “Simply looking at valuations would suggest technology stocks are overbought and most at risk of disappointing investors in 2021,” he says. “Yet much of market forecasting is based on past analogs and we would argue that given the unique nature of the COVID-19 pandemic, which caused voluntary shutdowns of broad swaths of the economy, such analogs are not as applicable today.”
Research from State Street in Asia Pacific goes some way to backing this theory up. Its survey of institutional investors in the region found a majority (64% in Asia Pacific, and 68% globally) expected continued and improved investment in new technology in 2021. Those moves to replace legacy IT systems with new tech and services are likely to maintain demand and revenues across the global tech market.
ESG Investing
Successfully managing environmental, social, and governance issues has become so vital for organisations throughout the developed world, that it even has its own investment trend that has gained plenty of interest – and funds – from the finance community. UBS’ Chief Investment Office says sustainable, or “Impact Investing” is also seeing some strong relative returns for its dedicated funds, portfolios, and indicies.
“So far, during the global coronavirus outbreak, MSCI Asia ex-Japan ESG Leaders have outperformed the regional benchmark by over 200 basis points,” it advised clients in 2020. “While past performance is no guarantee of future performance, we expect ESG considerations to continue to influence corporate and investor actions in Asia in the future.”
Mary Jane McQuillen, Head of ESG Investment at ClearBridge is similarly upbeat about the sector’s growth prospects in 2021.
‘We expect many of the drivers of strong returns for stocks with strong sustainability characteristics to continue in 2021,” she says. “We believe renewable energy will enjoy long-term secular growth as the world
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Louisa Lo
Mary Jane McQuillen
Top 10 Asia Pacific REITS
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transitions to a less carbon-intensive economy and as solar and wind power has become more cost-competitive with fossil fuels. The push to lower emissions and increased energy efficiency will (also) continue to support the growth of electric vehicles (EVs) and their evolving supply chains.”
Gold
While the world is looking forward to a year of recovery and growth in 2021, the previous year has taught us that uncertainty will likely persist for many years to come. That has brought some of the tried and tested safe haven investments back into focus, and the most trusted of these continues to be gold.
HSBC is describing gold as an important “portfolio diversifier” in 2021, particularly with ultra-low yields on highquality bonds expected to persist.
“(Gold’s) strong relationship to real interest rates should offer protection against positive inflation surprises,”it added. “There remains an abundance of uncertainty, with the imminent risks of Brexit, continued geopolitical uncertainty, and the as-yet uncertain success of a coronavirus vaccine.”
Goldman Sachs is also preparing for a continued rally of gold prices and associated assets. It holds a US$2,300 per ounce target for 2021, which would represent a 22% rally from current levels. In a recent investors’ note, Goldman analysts Mikhail Sprogis and Jeffrey Currie said this prediction was based on expectations for renewed concerns over inflation globally.
But not everyone is convinced. Some analysts suggest gold’s safe haven status has come under pressure during the current crisis, leading to greater than expected volatility last year. There is also growing demand pressure from a very different asset that many are claiming has alternative safe haven properties. That forms the basis of our next investment idea.
Bitcoin
It’s been a tumultuous ride for the world’s best-known cryptocurrency over the last few years, but 2020 saw it catch the eye of a serious level of institutional investment. Bitcoin’s price grew over 300% last year, boosted in part from its acceptance by mainstream companies such as Paypal. Many now see it as an alternative safe-haven for gold over the long term (the term “digital gold” is now being used to describe bitcoin), although with significantly greater price volatility in the short term.
Nikolaos Panigirtzoglou, Senior Global Markets Strategist with JP Morgan, believes that the adoption of Bitcoin by institutional investors has only just begun compared to holdings of gold. He sees Bitcoin’s intrinsic value rising significantly over the coming years as mining activity improves, although near-term risks are clearly skewed to the downside.
“The sponsorship we have seen for bitcoin through corporates and respectable asset managers is changing the views of many baby boomers (who have long-held a preference for gold as their investment safe haven of choice)”.
Green hydrogen
It’s the first, lightest and most abundant element in the universe, and it could provide a low-impact solution to the world’s energy needs. While currently, 99% of hydrogen is captured using fossil fuels, climate scientists say the technology to “greenify” these carbon-heavy processes is now within sight.
Bank of America Global Research says the stars are about to align for a potential $11 trillion market, with green hydrogen supplying up to 24% of energy needs by 2050. It says the falling cost of electrolysers (down 50% in the past five years, and estimated to fall 60% - 90% further before the end of the decade) used to produce green hydrogen, technology improvements, and the global focus on sustainability all highlighting the potential of green hydrogen as a revolutionary fuel source.
“Scaling up any new technology entails challenges, but we think now is the time to look at it, before it goes mainstream,” the Bank advised in a Hydrogen Primer report from September last year.
Beneficiaries of an effective green hydrogen solution will include the renewable energy sector, utilities, industrials, and chemicals. The oil and gas industry and coal sectors, meanwhile, can expect significant loss of global demand, Bank of America Global Research says.
Emerging market bonds
Both corporate and government-based bonds offer a stable investment choice in 2021, but analysts have an overwhelming preference for emerging market bases for these assets.
Nicholas Hardingham, a Senior Vice President with Franklin Templeton Fixed Income, says the growth gap between advanced economies and the emerging markets is set to widen further this year, with China in particular heading for an 8.2% expansion of GDP. “This is important because China is a growth engine to which many other emerging markets sell their commodities,” he said.
Emerging market government bonds are currently yielding around 4% more than their counterparts in advanced economies, and Hardingham sees that trend likely to continue into the year ahead. “As 2021 starts, government debt is expected to rise to 125% of GDP in advanced economies, compared with 62% in emerging markets.”
Standard Chartered’s Wealth Management Advisory is also positive on emerging markets, particularly Asia. “We prefer Asian USD bonds and Emerging Markets bonds as they should benefit from the weaker USD, stronger inflows, reduced geopolitical risks given the US election results, and potential for capital appreciation given cheap valuations,” it advises in its Market Outlook 2021 report.
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Gold price rises during volatile 2020
Source: www.gold.org/goldhub
Nikolaos Panigirtzoglou
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Achieving a greener future across Singapore’s built environment
Sustainability is the new focus for the real estate industry, and the key to success lies in renewed innovation.
Singapore’s government has pledged to have 80% of their buildings to be certified “green”
When it comes to the drivers of climate change, it is the world’s cities that are by far the biggest source of the carbon emissions warming the planet. The built environment accounts for nearly 40% of carbon emissions globally.
So it’s no surprise that those responsible for developing urban centres are now looking at strategies to reduce their impact on the wider environment. Sustainable solutions have been particularly sought after in commercial real estate where three factors are driving a new surge in innovation.
Firstly, governments are sensing a new level of urgency in the need to reduce the carbon footprints, and are now enforcing strict standards and targets. In Singapore, the government has pledged to have 80% of the buildings in the city-state to be certified “green”. Its commercial real estate developers have been quick to embrace the challenge, and after just nine years of the pledge - some 40% of local buildings have been transformed.
Change is also being driven by the end users of urban infrastructure: consumers are the second driver, and are demanding much greater attention be paid to the total carbon footprint of the facilities that they use. They want greater flexibility and tailored solutions to fit their own individual goals and lifestyle.
Besides compliance and market demand, continuous development in digital technology has been a third and equally important enabler of the trend towards more sustainable building solutions. The smart technologies provide customers with the tools necessary to move into a new era of connected and lowcarbon operations, while allowing businesses to manage resources more efficiently to meet stakeholder expectations. The rise of digitally connected and sustainable smart buildings has created a whirlwind of innovation that continues to meet and then raise consumer expectations. Digital to the rescue As we move into a new decade, all of these drivers are combining to challenge long-held perceptions of what a building is and does. Gone are the purely functional designs that provided accommodation for workers or infrastructure – today a building can be its own integrated digital ecosystem.
Developers that place the need for sustainability, along with the experience of their end consumers first and foremost, are finding they can continuously create new value and build on these digital economies of scale. Organisations need to map what the future of their business will look like in this more sustainable era. They need to understand the threats and opportunities, whilst defining a plan to ensure the greatest overall impact.
SP Digital’s mission is centred on this paradigm. It pushes itself to develop and to deploy sustainable energy solutions for businesses that make an otherwise complex journey simple and streamlined. The wide range of innovations that make up its Smart Digital Suite focuses on cost optimisation, energy efficiency, and improved occupant wellbeing.
Chang Sau Sheong, CEO of SP Digital, says that this combined focus allows its partners and users to push forward on the far-reaching goals demanded by the world of 2021. “SP Digital offers a foundation to advance the sustainability goals of the built environment with our EnergyTech solutions,” he says. “We believe that each of us must play our part to ensure a low carbon, smart energy future for Singapore.”
Embracing digitisation Some of the most visible examples of innovative digital solutions in the built environment are based around the Internet of Things (IoT) and artificial intelligence (AI). With this in mind, SP Digital has developed its Smart Digital Suite platform that integrates different building systems, data sources and solutions, providing customers with a holistic and seamless experience when managing their buildings and interacting with their occupants.
The platform leverages AI and IoT to empower building managers with the knowledge and tools to make informed decisions, enabling high-performance buildings by almost every sustainability measure, and further driving positive behavioural changes amongst occupants.
THE SMART DIGITAL SUITE LEVERAGES AI AND IOT TO EMPOWER BUILDING MANAGERS AND FURTHER DRIVE POSITIVE BEHAVIOURAL CHANGES AMONGST OCCUPANTS
With energy management as the core, customers have the option to select from various add-on modules in the areas of tenant sub-metering, managing distributed energy, electric vehicle charging systems, asset management, sustainability, indoor environment, user engagement, and much more.
To drive greater sustainability branding for commercial buildings, an available module is the Sustainability Display. This digital display, typically installed at high-traffic spaces such as lift lobbies or reception areas, provides timely data on the building’s aggregated utilities consumption and its resulting carbon emissions, which can be monitored over time and compared to other similar buildings or facilities.
The Sustainability Display further complements the SP Utilities app, which leverages behavioural nudges, gamification and sustainability tips to engage and to reward users for taking more environmentally friendly actions.
Across the full Smart Digital Suite, SP Digital’s knowledge and innovation enable energy efficiency, operational efficiency, and improved occupant well-being and comfort for the built environment. The company vows to continue enhancing its Smart Digital Suite of solutions to better serve customers.
To know more about SP Digital, the Smart Digital Suite, and its full portfolio of advice and services, contact: spd@spgroup.com.sg.
MAS expects a gradual and uneven growth trajectory for the Lion City
Recovery expected in multiple industries this 2021: Monetary Authority of Singapore
More vulnerable sectors will take a longer time in seeing potential relief, say analysts.
After the pandemic-induced recession in 2020, the Monetary Authority of Singapore (MAS) expects the country’s economy to finally expand in 2021, discounting a worse resurgence of COVID-19 cases. GDP growth has already rebounded in Q3 following a steep decline in the preceding quarter, but the momentum is likely to be subdued given headwinds in some domestic markets and the still-struggling travel sector.
The recovery witnessed in Q3 was brought about by a resumption in domestic economic activity as circuit breaker measures were relaxed and policy stimulus took effect, MAS said. The consumer services and construction sectors rebounded, whilst positive growth was seen again in the manufacturing industry as the global demand for semiconductors saw a sustained rise and petrochemicals output soared. Whilst activity in the Lion City’s major trading partners have recuperated, expansion is set to moderate due to a pickup in COVID-19 cases.
On their part, the Ministry of Trade and Industry (MTI) revised its 2020 outlook, forecasting the economy will shrink between 6% to 6.5%, narrower from the previous range of 5% to 7%. Based on estimates released by the MTI in October 2020, the economy bounced back 7.9% on a QoQ seasonally adjusted basis in third quarter.
Darren Tay, senior Asia country risk analyst for Fitch Solutions, agreed with the MTI’s revised forecast, saying it is close to Fitch’s own 6% contraction. Looking ahead into 2020, he believes that the financial sector will still outperform, whilst “more vulnerable” sectors such as retail and hospitality will have to wait for some quarters before seeing potential relief. “Lower consumer demand will continue to be an issue amidst higher unemployment for some time,” he said.
Indeed, the finance & insurance sector fared better than other sectors in Q3, when it reversed the 1.4% QoQ drop SA recorded in Q2. “Pockets of resilience” were found in insurance, MAS said, as the industry gained from robust demand for life products. However, the performance of the banking sector remained lukewarm as credit demand fell, with ACU loans dipping 0.5% in August from end-June whilst DBU loans stayed in the red at -0.3%, dragged down by manufacturing and housing loans, the central bank reported.
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MAS expects a “gradual and uneven” growth trajectory for the Lion City as 2021 knocks on its door. As most industries have already reopened, the next few quarters will see a decline in supply-side growth momentum, but demand shocks will endure as income loss and uncertainty still plague households. As a result, economic growth momentum is likely to be sluggish in Q4 2020 and remain modest in 2021, not counting
GDP growth is likely to be subdued given headwinds in some domestic markets and the still-struggling travel sector
DBU and ACU non-bank loan growth
Source: MAS
more work resumptions in industries dependent on foreign workers.
“Some pockets of the economy are not expected to recover to preCOVID levels even by the end of next year: in particular, activity in travel-related and some contact-intensive domestic services could still fall short of pre-pandemic levels until health risks abate,” the central bank wrote.
The rebound experienced by the consumer-facing sector should wane come Q4. In the demand side, it is still muddy whether the pickup in F&B and retail could be maintained as tourist arrivals remain abysmal and economic unpredictability will hinder household spending, MAS argued. Besides, the possibility of more firm closures in the coming months should not be discounted as government wage subsidies decline, it added.
On the other hand, industries that rely on foreign workers can anticipate a more notable recovery in the last quarter of 2020. Backlog in the construction sector should ease as contracts awarded should rise in the succeeding months, buoyed by public residential developments and upgrades, as well as projects such as the Jurong Lake District, new healthcare facilities, and constructions such as the Cross Island MRT Line.
Notwithstanding the slowdown, the travel sector should see some domestic support owing to the Singapore Tourism Board’s $45m marketing campaign and $320m worth of tourism vouchers for local tours and staycations, MAS said.
As is already expected, digitalisation will play a vital role in the further growth of the ICT and finance sectors, with the former likely experiencing a stable path thanks to its relative resiliency. The expansion of multinational companies such as Tencent and TikTok’s parent firm ByteDance into Singapore should spur long-term prosperity in the sector, as well as increase in mobile service revenue.
For the finance sector, even if credit demand could remain under pressure from a dampened risk appetite, it could be counteracted by improving fee incomes “amidst a healthy investment banking pipeline and recovering wealth management incomes,” the report said. Credit card networks players could also provide support as the adoption of digital payments services skyrockets, due to the digitalisation of spending.
The COVID-19 vaccine should also not be overlooked as a potential catalyst for faster recovery, Tay opined. In late November, CNBC reported that the vaccine candidate ARCT-021, co-developed by American biotech firm Arcturus Therapeutics and the Duke-NUS Medical School, has shown positive interim results and is in good standing to be delivered in 2021. Media reports later came out that Singapore can serve as an air cargo hub for the vaccines, with Singapore Airlines being readied for global transport.
On a negative note, another uptick in worldwide COVID-19 cases could push for more shutdowns and weaker-than-expected credit demand, or further decay in domestic market conditions could threaten growth outlook, warns MAS.
Even if the 2020s did not begin on a high, there is still room for prosperity in the new decade.
According to Tay, there is much at stake for more global appetite on trade liberalisation and growth in key economies, particularly the United States and China, since Singapore’s economic performance is closely tied to the rest of the world.
“We see balanced risks for Singapore between a much more insular mood regarding trade and globalization especially in the US and other parts of the developed world, and a slowing China on the one hand, and Asian efforts to continue liberalising trade and the generally faster pace of development in Asia’s emerging markets compared to the rest of the world, on the other,” he said.
Some pockets of the economy are not expected to recover to preCOVID levels even by the end of next year
Singapore’s real GDP growth
