Markets In Times Of New Normality: The Keys To 2021

The world economy has changed a lot this past year. Since the Coronavirus spread from China to the rest of the world at the end of 2019, the health crisis that has hit the countries of the world has not been able to leave the financial markets indifferent.

Thus we can say that this pandemic by COVID-19 already accumulates an unpronounceable number of victims and a complex and difficult financial perspective.

The deficit has skyrocketed in the face of the halt in a confined world economy, and the Organization for Economic Cooperation and Development (OECD) already estimates that the public debt ratio will rise by 18%.

The central banks are desperately looking for inflation, but the interest rates and profitability of the bonds are at a minimum, something that we saw, for example, a few days ago in the decision by the Bank of England not to lower the interest rates to negative, but to maintain them at their minimum of 0.1%.

In this way, the economic reopening not yet clarified in the calendar but encouraged by the advance of a possible imminent and effective vaccine against the virus, and the support of the governments and central banks, aims to achieve a shotgunned and "V" recovery.

But in this context, what does 2021 hold in store for us?

WisdomTree's Associate Director of Research, Mobeen Tahir, has pointed out that, despite the noise that may be being generated in the stock markets these days, we must be alert to the forces that will be mating next year.

A slow economic recovery with a vaccine under the arm

The first of these is the long-awaited economic recovery.

For the expert, regardless of the form that we want to give to the situation in the valley in which we find ourselves, "a constant economic recovery is already taking place at a global level, as highlighted by the GDP data for the third quarter in the United States, Europe and China.

Before singing victory Tahir, however, points out that these economies are still in the midst of recovery and "are far from making further progress from pre-pandemic levels.

Still, he predicts that if the promise of vaccines materializes, economic growth could accelerate and sectors that have suffered the most from this crisis (such as energy, travel, leisure, and finance) could breathe a little easier.

Growth-driven inflation

"As economic activity gains momentum, inflation is likely to increase," he explains, noting that these signs are already being seen and are likely to continue in the coming year.

It is expected that central banks, and especially the Fed, will continue on their course by allowing inflation to rise beyond the 2% target and that is when, according to the expert, investors will have to choose to grow or preserve the real value of their assets.

"General commodities and gold are likely to be in a better position to complement stocks in diversified portfolios in order to achieve inflation coverage," he clarifies.

China, a major player on the game board

The Asian giant has recently announced its plan for 2021-2025 where its policy of double circulation has set as an objective the growth of both its national economy and international trade.

However, it seems that this power is insisting this time on a renewed approach to science, something that, as the WisdomTree expert explains, "bodes well for the raw materials that feed these technologies, that is, industrial metals such as copper, nickel and silver, to name a few.

On the other hand, the much talked about improvement in U.S.-China trade ties with Joe Biden's administration "may provide tailwinds for this commodity sector," he explains.

Will the changes seen in the months of the pandemic be reversed?

While the vast majority of sectors have been affected by COVID-19 and its restrictive measures, the truth is that this pandemic has brought under its arm some trends (such as an improved network connection) that, according to Thair, are unlikely to be reversed.

"The improvement in air quality in many cities, as cars, trains and planes have stopped, has brought with it the discussion of cleaner energy sources, which has aroused the interest of investors in some issues such as batteries that drive the electric vehicle revolution," he exemplifies.

"It is expected that many of these changes will continue to progress even in a post-pandemic world," clarifies the expert.