The year 2020 has brought a lot of uncertainty. How and to what capacity the economy recovers will set the tone for investments. US banks recall that at least in the first months of 2021, the main risk will continue to be health.
The health issue especially concerning the vaccine against Covid-19, sector performance in the context of economic recovery, interest rates, a foreseeable new upward cycle in commodity markets, and the role of Asia in the global economy, are some of the relevant topics that Ty J. Young, a wealth management expert, puts on the table as those that will have the most interest in 2021.
Young is the Founder and CEO of Ty J. Young Wealth Management Inc., and several other companies based in Atlanta, Georgia.
Young has offered and completed thousands of consultations for retiring adults in the U.S. on respective options to increase their wealth. Retirees in the country wish to secure promising income streams, and Young is known to champion their interests with his more than 20 years of experience coaching firms and businesses on financial planning.
Approaching the new year, Young gives his insightful prediction on how the ongoing circumstances wrapping the final months of 2020 will lead an effect to Q1 of 2021, and how businesses and investors should approach and strategize for the emerging market conditions.
A vaccine that does not arrive
For Young, the arrival of a truly effective vaccine against the pandemic will be a reality in the first weeks of the following year or even before the end of 2020. However, between the arrival of the vaccine and its large-scale application, it takes months, which could inevitably mean a period of uncertainty coupled with economic instability.
While markets tend to buy the news in advance, this time they may ask for more results. At least 55 percent of the world’s population should be vaccinated with a vaccine that is 90 percent effective to achieve the long-awaited herd immunity. Until that happens, markets will have to grapple with doubts about the vaccine’s efficacy in older people, the actual worldwide distribution capacity, and large-scale maintenance.
Real rates, lower than ever
From his perspective, inflation should not be a problem in the next few months for most countries. In an environment of low-interest rates, this will mean that real rates will be lower than ever.
Most economists agree that short-term interest rates in the United States will remain close to 1.3 percent, and for the same 2-year term instrument, the yield will fall to 0.25 percent. Such low-interest rates in nominal and real terms can be a factor that should, in turn, affect the dollar.
Asia is the big winner, driven by China
Many experts predict that Asia will practically erase all the economic effects caused by Covid the following year, something that will not happen in Europe, much less in the United States, nor in emerging markets, where the light at the end of the tunnel may still be far away.
For this reason, Asia could have an overweight in its assets in the coming months. China is undoubtedly the market that has pulled the rest of the region. Economists say China’s strength will continue for a while and it could be the economy that grows the most in the following year, around 8 percent, recovering its traction. In other regions, the recovery should be at most 50 percent of what was lost this year.
Raw materials on the rise
The start of a new upward cycle in the commodity markets is possible, as economic activity normalizes due to increased investments in the sector to satisfy growing demand. Some economists advise their clients to position themselves more in material premiums than stocks.
However, experts caution there will be an exception since oil will not follow the same speed due to the high levels of crude that the planet has stored. In fact, the world should expect oil in 2021 to close around $65 per barrel.
Emerging markets will also contribute
Many economists feel emerging markets should have a strong recovery in 2021, although not enough to fully recover from the crisis generated by the pandemic. Either way, several experts advise positioning oneself in debt securities of nations such as Mexico, Russia, South Africa, and Brazil.
Investment diversification, new horizons
Because the yields of many sovereign bonds are already in negative territory or very close to absolute zero, investors should consider reducing their positions in these assets and looking to new horizons in their diversification efforts. From the perspective of most experts, some attractive options next year will be currencies such as the Japanese yen, and they also advise looking toward the metals market, especially gold.
When it comes to the political landscape in the United States, analysts focus their attention more on the composition of the cameras than the winner’s result. Many experts will wait until after the new President and Congress implement policies before evaluating their details.