The year 2021 is going to be for the Equity markets and less for the debt or fixed income as we have negative yields and disrupted business due to the Covid -19. ETFs will be attracting significant inflows in 2021. Few central banks have either scrapped dividend payouts whereas others have asked for buyback of shares. Dividends are big for US banks and if the same rule is being adopted in other countries then Equity will be having the best of the year for 2021. Further, as institutional funds returns are expected to be poor from Fixed income space, more focus on rules and guidelines will be towards Equity markets. It’s being expected that in Q1 of 2021 the stock buybacks could amount to$11 trillion which will take the global equity soar to new highs. Buy-back is just minuscule of the same, there are more to come from other countries.
Every delay in stimulus package leads to a significant impact on employment and increase income inequality. We have already witnessed $900 billion package and far high packages compared to GFC and this journey will continue in 2021. SWF funds will need Equity markets mainly to makeover the lost ground due to Covid -19. Fixed income market will be under the pressure of bonds and other money market papers credit quality and repayment.
Global fund managers are focussing on small caps and mid-cap space as compared to large caps since the later valuations have stretched up and the formers ones have a long way to go. In a Fund manager survey by Bank of America is it has been found that fund managers are significantly bullish on small caps with a significant number of FM are expecting a stupendous performance over the large-cap. The reason being that when stimulus money and buy-back options will come the market will rise from the mid and small-cap space to grow.
Another key reason for Small cap to be favoured decision is that many smalls caps through M&A will become Midcaps for tomorrow creating economies of scale and significant gain in investment portfolios.ETF's will be a key portfolio in 2021 for the investors and for institutional investors. Equity exchange-traded funds have overtaken their fixed-income peers for inflows this year bringing their total haul for the year to $196 billion. Total assets in U.S. bond ETFs stand at roughly $1.1 trillion, while their stock counterparts hold $4 trillion. If the equity rally gains further steam, that gap could grow even bigger.This year investors have put a record $27.4 billion into ETFs traded in U.S. markets that say they focus on environmental, social and corporate governance, or ESG, practices
Any new lockdown will keep the fund managers under the tight rope as moving of portfolios across different sectors –like from defensive to the economic sector will be key call. The year 2021 will face many hiccups from post covid factors like bankruptcy, prolonged delay in hiring and pay-cuts for a longer duration. Global funds will move out from one bucket to another based on the way vaccination and stimulus packages will unwind.
The world will need stimulus for managing income inequality which will be a long journey. The stimulus can be in any form but at the end, the same will be required to create jobs and get inflation back on the table. Please note that the current consumption is fuelled by the stimulus and not out of the real economic factors like a job, business and trade.
Vaccination success will play a critical role behind a global portfolio of investments to shift gradually from defensive to economic sectors. Well, I am not using the word called infrastructure sector segment since it has different understanding in different countries. Well, all sectors will not be performing but few key sectors will be early ones which will drive the engines of the economic sector. In 2021 we will witness significant inflows due to vaccination and for social benefits and economic factors. As per NACCHO around $8.4 billion is required for the state and local govt for vaccination.
More stimulus will be required for income inequality management where pay cuts and lack of quality jobs or rather Odd job market will intensify the demand for stimulus in various format for the global economy. EU will be injecting billions in 2021 to face the crisis of income inequality. The % of Americans suffering from income loss has moved up for higher income.
The global economy will witness a shift of growth from developed to emerging economies as during covid -19 the gaps of inequality and opportunity have been identified. Traditional assets will no longer be the key focus area for investments rather focus will change the dynamics of the game. Global Fund managers will shift the portfolios based on CAD, Currency valuation, Fiscal Deficit and Governing regulations supporting to attract the FPI.
5G related sector opportunities will be an endless discussion but as an investment and economic advisor it becomes important to identify the sectors like Edu-tech, Pharma, Payment Banks, Insurance –Technology-driven platform but this is a long haul game. These sectors will attract private equity and other investments opportunities for the long term.
Vaccination will create jobs and demand, investments within the economy. The vaccination itself is going to drive opening up of many opportunities. Logistics will be the biggest gainer where recruitment of manpower, investments, demands for new vehicles and carrier will come into place. Many existing business models in transport will drive growth from the vaccination business model.
2021 will be the year of Equity as that is the only survival for the global economy where a post covid business survival is under question.
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