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The COVID-19 pandemic made 2020 a rather unique year. With widespread global recession resulting from strict lockdown measures being implemented throughout much of the world, there has been little for investors to cheer. But with signs that the worst may be mostly behind us, an increasing number of opportunities will undoubtedly present themselves as we move into 2021.
The pandemic has also fundamentally changed our everyday existence, forcing us to make significant adjustments to how we choose to live, work and learn. With such a comprehensive change in habits, therefore, industries that may not have offered standout investment opportunities prior to the onset of the virus may suddenly now have notable appeal.
As such, 2021 will be more interesting than most years from an investing perspective, with COVID-19 offering up new and compelling ways for investors to prosper.
1) Online Retail
Given that lockdown continues to confine people to their homes for the time being, the online retail-sales boom that took hold in 2020 remains far from over. Indeed, shopping online for goods and services is now very much part of the “new normal”, which means the e-commerce market remains primed for further growth. According to research, global retail e-commerce sales totalled $3.53 trillion and is expected to grow to a whopping $6.54 trillion in 2022.
The Asia-Pacific is likely to be among the fastest growers in this sector. Online retail-sales growth in the Asia-Pacific is expected to climb from $1.5 trillion in 2019 to $2.5 trillion in 2024, at a compound annual growth rate (CAGR) of 11.3%. The forecast is based on data for 11 Asia-Pacific countries: Australia, China, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Thailand and Vietnam, with China the clear leader for the region. It is estimated that China’s online retail-sales market will reach $2 trillion by 2024 and will account for 50% of global online retail sales in 2020.
Asia’s high smartphone-penetration rates go a long way to explaining this trend, with more than three-quarters of online retail sales in the region being executed on mobile devices. In 2020, approximately 75% of online retail sales will occur on smartphones, and we expect online retail sales by smartphone to grow at a CAGR of 13.6% to reach $2 trillion by 2024.
As an asset class, the commodities sector was among the most brutally battered by COVID-19. But now, analysts expect a dramatic recovery to materialise in 2021, as demand continues to recover on the back of gradual easing of lockdown restrictions. It looks like the recovery in commodities has already commenced, with prices having risen sharply in November 2020. According to the World Bank (WB), energy-commodity prices rose by 6.4%, while non-energy commodities were up by 4.4%. Food commodities also surged by 5.6%, and base metals jumped by 6.0%.
The World Bank also sees this upward trend continuing in 2021. “Looking ahead, oil prices are expected to increase gradually from current levels and average $44 per barrel in 2021, up from an estimated $41 per barrel this year, as a slow recovery in demand is matched by an easing in supply restraint. Metal and agricultural prices are projected to see modest gains in 2021,” the Bank stated in its October 2020 “Commodity Markets Outlook”. It did, however, warn that a potentially longer than expected duration for the pandemic, particularly with regards to an intensifying second wave in the Northern Hemisphere, represents a major risk to these bullish projections.
Goldman Sachs, meanwhile, is even more bullish for commodities in 2021, arguing that the sector is set for another steep rally. In November 2020, the bank forecast a 27% return over 12 months for the S&P/Goldman Sachs Commodity Index (S&P GSCI), with a 19.2% return for precious metals, 40.1% for energy, 3% for industrial metals and marginally -1% loss for agricultural commodities. “We see a new bull cycle for commodities emerging in 2021 as demand recoveries meet restrained supply,” Goldman analysts added.
ESG (environmental, social and governance) investing and sustainability represents one of the hottest investment themes of 2020, with many predicting that the likes of ESG, impact investing and socially responsible investing are all about to take flight in the next few years.
“Millennials” and “Generation Z” are driving a profound change in the ways we invest, demanding that values pertaining to sustainability are seriously considered when making an investment or constructing a portfolio. According to some capital markets consultants, the overall value of assets under management (AUM) at funds leveraging ESG data has increased significantly over the past four years, from US$22.9 trillion in 2016 to more than $40 trillion in 2020. With ESG data integration becoming prevalent at asset managers, this growth trajectory is unlikely to slow any time soon. This strongly suggests that sustainable investing will continue to experience considerable growth in 2021 and beyond.
A report by US SIF: The Forum for Sustainable and Responsible Investment released in November 2020, found that the total of US-domiciled assets under management using sustainable-investing strategies grew by 42% in two years from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020, which represented a hefty 33% of the $51.4 trillion in total US assets under professional money management.
The report also highlighted that climate change represents the top specific ESG aspect for money managers in asset-weighted terms in 2020. The assets to which this criteria applies increased 39% from 2018 to 2020 to $4.2 trillion. Among institutions such as institutional-asset owners, insurance companies and retirement-plan sponsors, climate change remained the most important environmental issue, affecting $2.6 trillion of management money invested, which is 17% more than was invested in climate-related causes in 2018. Insurance companies and educational institutions considered climate change to be their biggest ESG-investment focus.
The sector should almost certainly receive a boost in that regard from the long awaited Biden presidency in the United States. The newly elected president pledged to re-enter the Paris (Climate) Agreement as soon as possible as well as more broadly focus on domestic and international environmental issues such as green energy and the enforcement of environmental regulations.
With the rapidly increasing number of opportunities to incorporate ESG themes into investment strategies, investors should find sustainable investing to be an easily accessible investing theme in 2021.
4) Emerging markets
For much of 2020, emerging markets (EMs) performed poorly along with developed-market equities. But by October 2020, the benchmark MSCI (Morgan Stanley Capital International) Emerging Markets Index had erased its losses from earlier in the year before registering 10% returns a month later. And it now appears that this rally is likely to continue in 2021.
Asia dominates the emerging markets, with 80% of total EM capitalisation and around 75% of the MSCI Emerging Markets Index represented by this region alone. With many of the world’s fastest-growing economies prior to the pandemic being located in Asia, it is highly likely that many of those same economies will once again be among the fastest to recover in 2021. It should also be acknowledged that as far as EM regions around the world are concerned, the COVID-19 pandemic has thus far more adversely impacted the likes of Eastern Europe, Latin America and Africa than it has Asia. As such, we should see Asian markets rebound solidly.
“We expect Asian equities to deliver attractive returns in 2021 given the current containment of COVID-19 in large parts of the region and the ongoing robust economic recovery in China,” Credit Suisse forecast last November. “As valuations appear to have already largely priced in good economic prospects, a continued recovery in earnings will be key to drive the market higher. The broader economic recovery and strong growth from the technology segment should prove supportive for earnings.”
Given the persistence of ultra-low interest rates and the adoption of an inflation-averaging strategy by the US Federal Reserve that aims to allow inflation to run above the 2% target, many are now expecting a weaker US dollar in 2021, which should further support EMs. “Historically, a weaker USD is great news for EM: it spurs capital flows to EM, buoys commodity prices and supports EM currencies, also helping local curves in EM to flatten,” noted Marcelo Carvalho, head of global emerging market research of BNP Paribas.
And with many hoping that the Biden presidency will precipitate a thawing of US-China trade relations in favour of multilateralism, EMs could receive a further boost in 2021.
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