Ten trends in the financial market in 2021
Reference News Network reported on December 15 According to the Austrian “Trend” magazine website reported on December 10, from inflation to dollar trends, key countries, winner substitutions, stock valuations and investment styles, it manages 2.2 trillion US dollars worldwide (Approximately 14.4 trillion yuan) assets of the US JPMorgan Asset Management Company have made predictions for 2021 from all sides. Ten trends in the financial market in 2021 the full text is excerpted as follows:
♦ 2021 economy: a weak beginning, a strong end sprint
The new wave of epidemics in Europe and the United States and the ensuing lockdown measures will continue to cause them to suffer losses in early 2021. Tillman Garrell, a capital market strategist at JPMorgan Asset Management, estimates that the economy may be weak at the start of the new year, “but it is unlikely that it will fall into a recession again.”
In the next year, the economy as a whole should go uphill. In the spring, the economy will shrink more moderately, followed by growth above the trend level. The service industry is particularly affected. But the example of China shows that the service industry in countries that successfully contain the epidemic will also successfully accelerate development.
♦ Inflation rate: there is a moderate risk of rising by the end of next year
As long as the epidemic continues to raging, the inflation rate will remain at a low level. But if economic growth picks up again, the inflation rate may also rise—not only because of increased demand, but also because of the base effect. For example, the price of oil in the United States in April 2020 is sometimes even negative. If oil prices remain at today’s levels in the second quarter of next year, then inflation will be driven by energy prices. When economic demand returns to normal after the epidemic is over, the risk of inflation will rise. Under such circumstances, if countries and central banks cannot restrain their expansionary policies, households’ depressed consumer demand will be superimposed with government demand growth. As a result, demand may exceed supply, and inflation will rise.
♦ Monetary policy: The dominant interest rate remains low, and bond purchases will decrease in the second half of next year
Since the risk of inflation is not too high, interest rates will remain low. The Fed’s paradigm shift in its inflation target has reinforced this trend. The Fed previously set a target inflation rate of 2%, but now it is adjusted to an average of 2% over a period of time. In this way, the Fed is shifting from pursuing a proactive monetary policy to pursuing a passive monetary policy. It will no longer fight inflation as soon as possible, but will let inflation develop before responding. Therefore, before normalization, the dominant interest rate is likely to remain at a very low level, which will last well beyond 2021.
♦ Yield: The yield curve of long-term bonds will become steeper
As the debts of many countries hit new highs, the low interest rate situation has been consolidated. This is the only way to control the increasing debt without jeopardizing the country’s stability. According to Tilman Garrell, if people are successfully vaccinated in 2021, the yield on long-term bonds may rise slightly. However, the negative real interest rate should not change. The historical example is the trend of US interest rates after the war. At that time, the Fed kept interest rates low so that it could finance the deficit. Because of the economic boom and baby boom, the United States got out of debt. But now it will become more difficult to get out of debt.Ten trends in the financial market in 2021
♦ The dollar bull market will end
The U.S. dollar may weaken in 2021, thereby ending the 10-year U.S. dollar bull market. That would be a turning point because the dollar has been strong since the financial crisis. After the epidemic prompted relevant parties to cut interest rates, the interest rate differential between the US dollar and the currencies of other industrial countries narrowed again. The attractiveness of the US dollar as an investment currency has diminished. As the global economy begins to recover, the flow of US dollar capital may accelerate into other currency areas. For example, newly industrialized countries and Europe can also benefit from it. If Europe can successfully overcome the political uncertainty caused by Brexit and the epidemic, it may become an attractive region-but it is too early to make a conclusion.
♦ After the end of the US cycle, emerging markets will prosper
Historical experience shows that a weak dollar will bring tailwinds to emerging markets. Looking back, we can also find that every major crisis in the past 30 years has been accompanied by a change of winner. For example, after the technology bubble burst, emerging markets ushered in a period of material prosperity. The financial crisis declared the end of this phase, and what followed was the current American cycle. Now, following the American cycle seems to be the “Asian Decade”. In particular, China’s successful fight against the epidemic has decoupled the country’s economic cycle from the rest of the world.
♦ Recommend corporate bonds and local currency bonds
JP Morgan Asset Management is optimistic about 2021 corporate bonds. Gallel said: “Corporate bond default rates may rise, but improved economic prospects and the introduction of rescue plans will ensure that medium and large companies are less likely to go bankrupt than during a regular recession.” Countries and central banks are currently preparing to take a lot of risks . In this context, the medium risk premium is still attractive.
Bonds issued in local currency are also an attractive option, and China has also been active in this regard. Gallel said: “Opening up to foreigners the RMB bond market worth 15 trillion US dollars provides investors who have suffered losses due to low interest rates with an opportunity to obtain an investment return rate of more than 3%.” Another advantage is that. , These bonds have relatively low correlation with developed countries’ bonds and stock markets, which helps to improve the risk-return status of investment portfolios.
♦ Corporate profits rise, stock valuations fall
The stock price-to-earnings ratio will fall in 2021. Although the profits of companies will rebound, the average value of stocks is already high. The increase in stock prices may be smaller than the increase in corporate profits. Nevertheless, stocks will be more attractive than bonds next year.
♦ value trump growth
Since the financial crisis, value investors have been in a difficult situation. One of the main questions that investors have been facing for a long time is when the long-awaited “style rotation” will happen. This year, the epidemic initially exacerbated the difference in valuations of different types of stocks and promoted the flourishing of classic growth industries such as technology and e-commerce. But since the news that a vaccine is expected to be launched soon in early November prompted people to expect the epidemic to end, the value of tangible assets has also begun to rebound. As the economy further normalizes, such stocks should be able to “recover some of the lost ground” and bridge the valuation gap with other growth stocks.
♦ Europe’s investment trend that emphasizes environmental, social and corporate governance will accelerate
The trend of sustainable development is becoming more and more important to investors. Addressing climate change initially seemed to be a priority for Europe, but European policymakers are now playing a leading role: the EU has set itself more ambitious CO2 reduction targets, and has achieved more than the rest of the world in trying to achieve these targets. Made greater progress. In addition, the European Commission promised in 2020 to increase investment within the framework of the European Green Agreement and use 30% of the EU Recovery Fund for green initiatives. Garrell predicts: “Looking forward to 2021, we will see that the world will increase its efforts to combat climate change. This will be officially determined at the 26th United Nations Climate Change Conference in Glasgow, UK in November 2021. That is. It will have a profound impact on our lives, production and consumption patterns, and capital markets.”
The above is what JPMorgan Asset Management predicts: Ten trends in the financial market in 2021