The year that we have just released is full of hope after the Covid-19 pandemic that caused the collapse of the main world economies, except China. The economic recovery is the great bet for this exercise that can be truncated by the delays and difficulties in vaccinating the population. On this main axis, other uncertainties will haunt such as the final result of Brexit, the end of the Merkel era, the improvement in corporate profits, the future of the digital giants, Joe Biden's policy in the United States, the weakness of the dollar and the rebound in raw materials in the heat of increased activity. Also in 2021 the problems of climate change and the promotion of new energies will return to the fore. And as a thermometer of the pandemic, a new attempt at the postponed Olympic Games in Tokyo.
Economic recovery and vaccination
The forecasts of the main world organizations suggest that 2021 will be the year of economic recovery after the sharp falls in gross domestic product (GDP) in all countries, except China. The estimate indicates that the world economy will grow by around 4%, highlighting the evolution of the Asian giant for which the IMF, the OECD or the EC are leading with an increase in its GDP of around 8%. Global improvement that, however, will hardly return the destroyed wealth to the levels of 2019. In these first stages of January, doubts about the evolution of vaccination have jumped, closely linked to the expected improvement. This same week the World Bank warned that if there were delays and new confinements, the world economies will only grow 1.6%. This is the great unknown for the markets. As Juan José Fernández-Figares, Link Securities analysis director indicates: “If the economic impact is less than expected and the population is immunized before the summer, fulfilling the scenario contemplated by most investors, I believe that the year for the stock markets can be very positive ”. An idea shared by the managers of Natixis Investment Managers: "Continued optimism about the efficacy of the vaccine and its distribution are necessary to maintain the appetite for risk in robust conditions." Therefore, the Stock Exchanges, their companies, their results, their debts, the prices of raw materials ... will totally depend on the success of the vaccination against Covid-19.
Central banks guarantee low rates
If the investor should not worry about something, it is the trend in interest rates and the public debt and fixed income markets of large companies. Both the ECB and the US Fed remain committed to keeping rates low and their intervention in debt markets. A negative rate scenario will continue. Of course, although the experts do not expect bond revaluations, these forecasts have been exceeded in previous years. Negative rates can be even higher, and thus bonds can continue to rise. Peace of mind for bonds where the scenario can get complicated beyond 2022.
Hands-free for the new president Joe Biden
For many analysts, the year will begin on January 20 when Democrat Joe Biden takes office as the new president of the United States. With the mystery over the control of the Senate cleared, which also falls into the hands of Democrats, the markets will list fears and hopes for the Biden program. According to the Link Securities expert, the Democratic blue wave means raising taxes on companies, higher incomes and capital income, decisions that are not well seen on Wall Street. Biden is also expected to be more generous on fiscal policy to maintain momentum in the economy and expand social coverage. A bet that will increase public spending and weaken its currency. Analysts believe that renewable energy, infrastructure and consumption will be the sectors that will benefit the most from the new presidency. Greater predictability in international relations and multilateralism will mark the agenda of a Biden that, however, according to experts, will maintain the pulse against his biggest economic rival, China.
A weak dollar year
The euro appreciated almost 10% against the dollar last year. Experts point to the greenback continuing to weaken from the current 1.22 levels. A forecast that should be taken into account when making any investment denominated in dollars, such as US stocks and bonds or in raw materials (oil or gold) that are traded in this currency. Bankinter analysts expect a rise in the euro that would reach a maximum of $ 1.25 this year and up to $ 1.27 in 2022. Of course, they point out that the ECB's concern about the reduction in economic growth and imported inflation by a strong euro will avoid more abrupt movements. In addition, Biden's total victory will favor a weaker dollar due to the greater indebtedness of its economy.
Business profits and dividends
The growth rates of business profits according to the data of the consensus of analysts are between 20% and 30% for this 2021. Some increases that, according to David Cano, managing partner of Afi Inversiones Globales, will not be enough to cover the fall in profits experienced in 2020. Again, everything will depend on the vigor in the recovery of the economies, closely linked to the immunity of the population. Cyclical companies will be among the most favored in this positive context. For Natalia Aguirre, director of analysis of Renta 4, her bet is clear on the Stock Market over bonds and she prefers Europe to the United States. An improvement that will be transferred to dividends, although some abnormalities will persist, such as the ECB's limitation on bank payments.
New technology against FAANG
The great technology companies of the world, known as FAANG (Facebook, Amazon, Apple, Google, Netflix…) have been reinforced during the pandemic. Its positive evolution explains why the Nasdaq technology index has revalued 40% in 2020 in the midst of the collapse of the economies. However, by 2021 a change is expected in a technology sector that will continue to thrive, also driven by the new US presidency that is prone to stricter regulation of these giants. The antitrust measures of the European and American authorities against these companies can represent a turning point. Roberto Scholtes Ruiz, UBS strategy director in Spain, points to a new technological revolution with 5G communications. We will have to be attentive to the businesses that arise from 5G, as well as to green technologies (hydrogen, batteries), the promotion of genomics in the pharmacy or the new fintech. In the opinion of this expert, these are businesses that can triple in the short term.
A Europe without Merkel and other elections
After 15 years of Angela Merkel at the head of the German Government, this 2021 will mean her retirement with the elections to be held in September. He has led Europe in two major crises - the financial crisis of 2008 and the one caused by Covid-19 - and his determination has been key to maintaining a cohesive and united Europe, despite the hesitations at the beginning of the financial crisis. An important unknown for the markets, in the absence of solid leaders on the European scene. Other important elections for the interests of Spanish companies are those of Mexico in June and those of November in Chile. Russia will also hold elections in September.
The final resolution of Brexit
Analysts at Swiss bank Julius Baer explain that the Brexit deal signed in extremis last December is slim in substance despite its 1,200 pages thick. The prevention of tariffs and quotas in the trade of goods between the UK and the EU (approximately 438 billion pounds last year) is the greatest of emotions. “Other than that, the deal follows the harsh characteristics of Brexit by shutting out trade in services. This gap keeps the financial services sector in limbo ”, they explain. The Swiss bank expects UK GDP growth in 2021 of 2.9%, considerably lower than that of
The US (3.5%) and the euro area (4.0%). Lower growth that discourages purchases on the British Stock Exchange. In the case of Spain, it will also have an effect on the real estate market on the coast where they are the main buyers. In addition, the pound will remain weak, plagued by a possible Scottish break with the United Kingdom that could begin to take shape in the Scottish elections on May 6.
Renewables, on the markets agenda
It is clearly one of the sectors favored by Joe Biden's electoral victory. Climate change took a back seat in 2020 due to the importance of the pandemic. The main event will be the climate change conference convened for November in the city of Glasgow, but before that there will be other meetings that will set deadlines for a new carbon-neutral economy that can help reindustrialization in times of post-pandemic. Added to the strength of renewables (wind and photovoltaic) is the new hydrogen technology which, as it requires a lot of energy, is complementary. Experts are betting on these companies for 2021 and already in the first days of this year they have offered great returns.
The resurgence of raw materials
The price of oil is still 20% below the levels set a year ago and that despite the rally after the sharp fall in March both due to the pandemic and the trade war between Russia and Saudi Arabia. The calm has returned to the bosom of the producers (OPEC) and if the forecasts of economic reactivation are fulfilled, their price will rise, pushing the rest of raw materials. Production companies or top-tier transformers will rise strongly in 2021, also benefiting emerging countries, especially Latin America. UBS expects oil to be around $ 60 a barrel this year, while US bank Goldman Sachs puts it at $ 65 by year-end, compared to Brent's $ 54 today.