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.
Written By:Flora Harley, Knight Frank, 01 Mar 2021
5 minutes to read
At a glance:
- Emerging markets are back into focus
- Tech and healthcare are big on the agenda thanks to the pandemic
- Identifying the “of-the-moment trends” and correctly identifying those that will constitute the “new normal” is where value will be found
- Safe-haven income-producing real estate, such as offices, in the most liquid global centres that demonstrate market resilience will appeal
- Those who bet big on Bitcoin last year have reaped rewards, with Forbes noting that the surge has even created new billionaires
Running of the bulls
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 post-pandemic 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.
“New normal” opportunities
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 in other articles, 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.
Real estate’s appeal
In an environment of volatile equity markets and lower yielding bond markets, the investment case remains for the right sort of real estate.
As well as offering potential for diversification and inflation-hedge benefits, real estate that harnesses asset, geographic and market resilience has the potential to access the benefits of local growth drivers, the upside of structural change and recovery from the pandemic.
Different sectors capitalise on divergent trends. Residential assets take advantage of demographic changes, whereas data centres and life sciences capture the rise of innovation, which tends to occur during periods of dislocation.
Parts of the retail sector are facing the effects of an acceleration of structural changes that were already occurring before the pandemic, as e-commerce increases globally. Yet much of the industrial sector is benefiting from the same change and has continued to see firm relative demand.
The type of real estate targeted will depend on the portfolio balance. Some will be looking to capitalise on these trends but there is also evidence of continued weight of money targeting core, safe-haven income-producing real estate, such as offices, in the most liquid global centres that demonstrate market resilience.
The new gold
Cryptocurrencies, particularly the most notorious, Bitcoin, have been touted by their disciples as the new safe-haven alternative to gold since 2014.
Over 2020, the value of Bitcoin rose by more than 300%, breaking the US$40,000 mark for the first time in early January. This, however, was followed by a fall of US$10,000 in a matter of days, highlighting its volatility.
One thing supporting valuations is relative scarcity. While the supply of gold rises by around 1.25% each year, only 21 million Bitcoins will ever exist, with an estimated 18.5 million already having been “mined” and as many as 4 million “lost”.
Although regulators remain sceptical, funds and investment banks are starting to come on board, lending crypto a bit of wider credibility.
Those who bet big on Bitcoin last year have reaped rewards, with Forbes noting that the surge has even created new billionaires. But is this the ultimate bubble?
For those with a high appetite for risk the pay- off could be huge. JP Morgan suggests a long-term price possibility of US$146,000, while the more bullish Tyler Winklevoss has said its value could even rise as high as US$500,000. With such wild price instability, though, Bitcoin is unlikely to steal gold’s safe-haven status any time soon.