2021 Outlook on The Markets And The Economy
It’s that time of the year again, where we analyze how recent market trends will affect the global financial situation and examine the expected market trends of 2021. From a societal, economic, and political standpoint, we’ve come out of a uniquely stressful year, with the financial lows only comparable to the great depression. Fortunately, both the markets and the economy witnessed an incredible rebound. So, moving forward, the only way to analyze the market this year is by looking at where the money is.
Financial Recovery
In November 2019, everything pointed to economic growth both domestically and internationally. Then the pandemic hit, and industries such as the hospitality industry were greatly affected. The question on everyone’s lips right now is whether such sectors will be able to recover to the point they were in 2019 and how long it will take. Most financial analysts predict that it will take roughly 2-3 years before we fully recover, but all that is dependent on how fast things will go back to normalcy. Even with the markets recovering from a 30% drop, sometimes the data can get so big that we often lose track of individual enterprises.
Changes and Opportunities Present in The Current Market
The pandemic affected almost all global markets but didn’t quite manage to dent the tech and large-cap growth markets. So, as soon as things go back to normal, there are signs that we’ll witness a broadband recovery of the markets. Typically, what happens after recessions, the market is usually flooded with value stocks, and that’s what we’re currently seeing. At the moment, the most substantial surging segment on the market is the small-cap value, followed by the mid-cap value.
Why Emerging Markets are Getting Noticed More
Although this might not reflect on every emerging market, companies in various emerging markets globally have typically lower valuations. When we talk about lower valuations, it’s not about the dollar price per share but how much profit you’ll potentially gain from every dollar you spend. Pre-pandemic, the dollar was towering against all other top currencies worldwide. Yet, as of March 2020, all that changed, and the dollar was down to a region of around 11 to 13%. This means that if you invest in an emerging market using U.S dollars, the returns you’ll get denominated in U.S dollars will reward your investments outside the U.S.
It’s a well-known fact that most emerging markets are built on a strong commodity base. As the global economic recovery occurs, there will be a demand for these commodities, and as a result, commodity-based economies will thrive.
The Stability of Currencies in Emerging Markets
Some people prefer investing almost 99% of their portfolios in their parent currencies. This is particularly prevalent in the U.S since large-cap growth has been thriving in the last couple of years. We’re not saying that this is a bad idea, but as an investor, you should try and shift from the home-team narrative where you only invest in your parent currency. As a means of diversifying your assets, why don’t you try and fund a maximum of 11% percent of your portfolio on emerging markets? 11% is a reasonable percentage in a market that offers distinct margins and growth potentials.
Financial Trends For 2021
Traditionally, investors only looked at balance sheets, numbers, and substantial dividends. However, the past couple of years have seen a shift in the way people approach investing. Nowadays, investors also look at impact investments, environmental concerns, and how companies give back to society. The change in investor mindset has led to an increase in the number of people investing in clean technology such as solar and biofuels.
How Consumers Will Affect The Market in 2021
Due to government restrictions and travel regulations, people didn’t spend a lot of money on vacations and travel. With that in mind, it makes sense that some people would allocate more funds towards spending, while others would allocate less. However, all this is dependent on how fast a vaccine will be distributed, and the rate at which everything goes back to normalcy. All in all, dollars will ultimately be spent, which will eventually lead to market prices going up.
Housing Markets
According to Realtor.com, there is a growing expectation that mortgage rates will go up from 2.5% to a whopping 3.4%, with house prices expected to go up by 5.7%. Although other information sources will present different numbers, the general prediction is that prices will ultimately go up. So, if you had plans of buying a house in 2021, brace yourself because the costs will be a little higher than you initially thought. Nevertheless, as is the common narrative, real estate is all about location. You might end up landing a sweet deal if you look hard enough or wait long enough.
Analysis of The Cryptocurrency Space
Ever since bitcoin’s value moved from $5,000 to around $20,000 in 2018, more and more people are starting to look at cryptocurrency as a new asset class. In response to the pandemic crisis, the federal reserve injected trillions of dollars into the U.S economy. The most logical impact of such actions would be that the dollar will undoubtedly struggle at one point or another. In turn, this has led to investors looking at the stability of cryptocurrencies as a long-term solution to such government practices. Even with such stabilities, the crypto world is extremely volatile and not potentially suited to everyone.
