The Covid-19 vaccine, the new US President and Britain’s final exit from the European Union will dominate the investment outlook for 2021, according to Columbia Threadneedle Investments.
William Davies, chief investment officer, Emea, for the global asset management company, said the three themes will set the investment agenda for next year following a tumultuous 12 months as the global economy has grappled with the biggest financial shock since the financial crisis of 2008-09.
“Following unprecedented levels of stimulus and government intervention, the level of debt is going to be even greater than it was after 2009 and we will emerge into a world of low inflation, low growth and low interest rates – such a backdrop is not one where traditional value investing is likely to outperform over the longer term,” Mr Davies said.
Here’s why the vaccine, Joe Biden taking over as US president and the UK finally waving goodbye to the EU, will affect investments in 2021:
Covid-19 vaccinations will kick-start global recovery
Global markets responded positively to the news of an effective vaccine in several countries last month, with the approval from health regulators, starting with the UK this week, providing a further boost to sentiment.
Richard Hunter, head of markets at British investment platform interactive investor, said the focus will shift early next year towards the gap between discovery and distribution of the vaccine on a global scale.
“Not only would a roll-out in the early months be positive in crippling the pandemic, but it would also allow economies to regain some footing and companies to recoup some previously lost earnings,” he said.
“Conversely, delays due to the regulatory bodies, doubts on the vaccine’s efficacy or a slower than expected distribution would threaten investor sentiment.”
Mr Davies said while the end of the pandemic is in sight, the fundamentals are likely to deteriorate before they get better as several economies are still shut down.
His earlier expectation of a U-shaped recovery, with economic activity back to pre-pandemic levels by end of 2022, could change with the rollout of the vaccine leading to a much quicker recovery.
This could be further boosted by an explosion of post-pandemic spending, particularly on experiences such as travel and leisure, driven by a build-up of savings during the crisis when people could not spend as much.
“That should bring forward the economic recovery by as much as nine months, meaning we see a recovery to pre-pandemic levels by early-2022 or possibly even the end of 2021, he said.
The critical thing is to remain invested in companies that are going to make it through and ultimately benefit from the economy reopening, he added.
Biden's victory set to soothe trade relations and boost equities
Joe Biden’s victory in November delivered a divided US government, with a run-off election in Georgia that could see the Democrats with marginal control of the Senate as well as the House of Representatives.
Mr Davies said Mr Biden appears to be a more stable, consistent leader likely to “heal domestic divisions as well as repair international relationships” through moves such as re-joining the Paris climate accord.
"This will have a positive impact on slowing climate change and aligning the US with other nations,” he said.
“We also expect him to continue taking a tough line on China, but with a different style to the rhetoric and a more consistent approach. Biden will no doubt have a more constructive relationship with Europe too, and Germany and France in particular, which has deteriorated in the past four years.”
Mr Hunter said it remains to be seen if the fractious relationship between the US and China will be more conciliatory under Mr Biden or "whether the damage has been done".
“The fact that the world’s two largest economies may remain at loggerheads could be unsettling for investors and could accelerate the reverse of what had been a strong trend towards globalisation generally," he said.
Mr Davies said a split Congress means Mr Biden’s plans to inject stimulus in the form of a huge infrastructure bill also appears to be off the table.
"We find ourselves in something of a middle ground, which is a reasonably healthy position for equity and credit markets, and certainly one that benefits the likes of US utilities, consumer staples, real estate and tech, but which may have negative implications for financials, energy and health care," he said.
A happy Brexit ending will reboot FTSE100
With the end of the Brexit transition period later this month edging ever nearer, markets are on tenterhooks as to what will happen before then.
“The most likely outcome is that they will come to some sort of agreement – even if elements of that agreement include decisions still to be agreed,” said Mr Davies.
Mr Hunter said institutional investors view the UK as “uninvestable” with much of this down to Brexit uncertainty.
“The release of the UK from the EU removes a potential obstacle, even if the economic prospects make for ugly reading,” he said.
For investors looking to invest in the UK, the FTSE100 has had a chequered history in recent years, adding 7.6 per cent in 2017, before declining 12.5 per cent in 2018. This was followed by a 12.1 per cent rise last year with a fall of about 17 per cent so far this year.
“Interestingly, a spike of over 12 per cent during November suggests that appetite for the index may be slowly turning more positive,” said Mr Hunter.
A positive Brexit ending could also lure back global investors searching for value.
“If a Covid -19 vaccine can be ... distributed early, and if the conclusion of the Brexit talks result in an outcome which does not place undue further pressure on UK companies and therefore the economy, the resultant effect would be positive," he said.
Company profile
Name: Thndr
Started: October 2020
Founders: Ahmad Hammouda and Seif Amr
Based: Cairo, Egypt
Sector: FinTech
Initial investment: pre-seed of $800,000
Funding stage: series A; $20 million
Investors: Tiger Global, Beco Capital, Prosus Ventures, Y Combinator, Global Ventures, Abdul Latif Jameel, Endure Capital, 4DX Ventures, Plus VC, Rabacap and MSA Capital
The biog
Favourite hobby: taking his rescue dog, Sally, for long walks.
Favourite book: anything by Stephen King, although he said the films rarely match the quality of the books
Favourite film: The Shawshank Redemption stands out as his favourite movie, a classic King novella
Favourite music: “I have a wide and varied music taste, so it would be unfair to pick a single song from blues to rock as a favourite"
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
- Solo riders only, no passengers allowed
- Do not drive outside designated lanes
57%20Seconds
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MOUNTAINHEAD REVIEW
Starring: Ramy Youssef, Steve Carell, Jason Schwartzman
Director: Jesse Armstrong
Rating: 3.5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
UAE currency: the story behind the money in your pockets
Company%C2%A0profile
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Dust and sand storms compared
Sand storm
- Particle size: Larger, heavier sand grains
- Visibility: Often dramatic with thick "walls" of sand
- Duration: Short-lived, typically localised
- Travel distance: Limited
- Source: Open desert areas with strong winds
Dust storm
- Particle size: Much finer, lightweight particles
- Visibility: Hazy skies but less intense
- Duration: Can linger for days
- Travel distance: Long-range, up to thousands of kilometres
- Source: Can be carried from distant regions
COMPANY%20PROFILE
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Our legal consultants
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
First Person
Richard Flanagan
Chatto & Windus
'Avengers: Infinity War'
Dir: The Russo Brothers
Starring: Chris Evans, Chris Pratt, Tom Holland, Robert Downey Junior, Scarlett Johansson, Elizabeth Olsen
Four stars
What can victims do?
Always use only regulated platforms
Stop all transactions and communication on suspicion
Save all evidence (screenshots, chat logs, transaction IDs)
Report to local authorities
Warn others to prevent further harm
Courtesy: Crystal Intelligence
Pathaan
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