W E A LT H
CITIES
HOME
INVESTING
PA S S I O N S
DATA B A N K
P50
We cast our eyes over some of the biggest investment trends dominating the headlines, ask what they mean for private investors and wonder how they might play out in 2021
Trending up WO R D S – F LO RA HA R L E Y
Running of the bulls
Emerging markets
“New normal” opportunities
Overvalued, in a bubble, inflated – a selection of current favoured ways to describe equity markets, particularly those in the US which hit record highs last year, despite the Covid-19 pandemic. Since early 2009, the S&P has risen nearly 500%, recovering quickly after a sharp blip in March 2020. However, as analyst Capital Economics points out (among other factors), though valuations for some equity markets look high by historical comparisons, this is justified by lower-than-average interest rates. Swiss bank UBS notes that all the conditions (rapid rises in Bitcoin being one of them) indicative of speculative investing, which helps create equity bubbles, are currently present in the market. But, it argues, ultra-low interest rates and continuing government stimulus measures mean stocks and shares are still attractive. That the 1918 Spanish flu pandemic was followed by the Roaring Twenties a century ago has led some commentators to revisit the phrase, but this time wondering if the boom can be replicated without the hangover.
A weaker dollar, concerns over US equity valuations, a bounce back in commodity values and the potential for strong postpandemic corporate earnings growth (28%, reckons a UBS note) has brought emerging markets back into focus. David Bailin, Chief Investment Officer at Citi Private Bank, notes a general “movement to high growth Asian markets and a tactical move to Latin American markets” as two of Citi’s biggest investment themes. Plenty agree. The benchmark MSCI Emerging Markets Index had already gained 9% during 2021 at the time of writing (21 January), largely driven by Asian tech and e-commerce businesses. Local stock markets have also hit record highs. Not everybody has been swept along, with some investors citing the risks surrounding corporate and political governance for their reluctance. Bloomberg’s fear–greed indicator, which measures selling strength versus buying strength, for the MSCI measure, has climbed to its highest level since October 2011.
The two biggest industries to have garnered attention and opportunity during the pandemic are tech and healthcare. Formerly “disruptive” businesses like Zoom are now mainstream. But will touchless technologies continue to dominate as the hangover from the pandemic rolls on? Could edtech and digital health be used to bridge inequalities across both advanced and developing economies? Will we still be using virtual hangouts when meeting in person becomes a viable option once more? Identifying the “of-the-moment trends” and correctly identifying those that will constitute the “new normal” is where value will be found. Joe Biden’s presidency also ushers in another kind of new normal. We discuss ESG investing on page 52, but Biden’s immediate reversal of his predecessor’s decision to leave the Paris Climate Agreement, and his less heralded, but arguably more important, moves on climate change accounting, will give a big boost to environmental investors.
