Analyst Insights
It is important to note that the social and economic uncertainties resulting from the onset of the COVID-19 pandemic won’t suddenly subside with the end of calendar year 2020. However, from an investment perspective, we believe that 2021 could offer a welcome change to what has been an unforgettable year. We have now transitioned to an expansion phase in our current economic cycle. Investors should note that despite the unprecedented event that occurred in 2020, this pattern has played out before. In 2010, investors questioned the rally following the 2008 crisis but we now know that period marked the start of a long bull market. The lesson to be learned from 2010 is that the cycle usually wins and it is imperative that investors position themselves to take advantage of depressed asset prices. Markets will still have to cope with uncertainties, including whether the U.S. Senate the elections in early January will lead to a unified government or keep the current status of a divided government.
Global and Local Earnings expected to rise
According to Morgan Stanley’s Strategists, despite the rally in the US stock market they expect 25% to 30% earnings growth across major equities markets and significant declines in corporate leverage. They believe investors should overweight equities and credit vs government bonds and cash, in addition to positioning for U.S. dollar weakness. Our local markets major equity indexes are still down by high double digits, however, with the development of a vaccine and the reopening of businesses, we expect company’s earnings to gradually rebound.
Has Markets Priced in expected earnings improvements?
For our local market, the short answer is no. COVID-19 cases and geopolitical uncertainty appear to be muting investor sentiment. As we have stated in our previous articles , the Jamaica Stock Exchange (JSE) is still in bear-market territory, meaning the JSE is still down by over 20%. Hence there lies an opportunity to capitalize on the current bear market (please see Investment Playbook for such opportunities). Unfortunately, most investors will end up buying when the market is rising in an effort not to miss the “winnings”. However, it is imperative that investors use this opportunity to build out their portfolios.
Fixed Income Market Throughout 2020
Corporations ran to the bond markets at an unprecedented pace in order to have a strong liquid position in case things got worse. However, as the economic and earnings outlook improve, many issuers could use this cash to pay down debt and improve their credit ratings. For this reason, investors should take a look at high-yield over investment-grade corporates across all regions, supported by the view that, as credit spreads tighten, excess returns will match or exceed historical averages.
Other Asset Classes
Most Commodity prices recovered in the third quarter of 2020 following steep declines after the coronavirus pandemic. Crude oil prices have doubled since April as a result of supply cuts but remain lower than their pre-pandemic levels. Metal prices recovered mainly due to increase in China’s industrial activity. According to World Bank Group, Oil prices are expected to average $44/bbl in 2021, up from an estimated $41/bbl in 2020. Metal and agricultural prices are projected to see modest gains of 2% and 1%, respectively, in 2021.
Given the vast amount of underlying opportunities remaining as we approach the new year, one of the best means of capitalizing on them is through unit trust products while the market is still down. Barita’s suite of Unit Trust products, namely FX Bond Fund, Capital Growth Fund, FX Growth Fund, Money Market Fund, And Income Portfolio allow investors to gain exposures to these opportunities at a much lower cost versus direct exposure to individual securities, thereby benefiting from diversification and the guidance of certified portfolio managers. As we approach the future, being positioned in these funds is the best way to capitalize on the current opportunities today in preparation for tomorrow.
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Written by Jonathan Cook, Research Analyst |
Conclusion
The biggest lesson from 2020 is that technology is here to stay...
The biggest lesson from 2020 is that technology is here to stay, the quicker you are the accept this newfound truth, the better position you will be to adapt to the future. Businesses that had integrated technology into their r products have been the primary benefactors during this pandemic.
This trend is here to stay and entities that are technology based have add...
This trend is here to stay and entities that are technology based have add access to higher levels of liquidity both f rom the bond market and the private markets. This is evidenced by telecommunications, consumer products and high technology being the industries that raised the most amount of debt during the recovery period.
Global debt levels, both sovereign and corporate, approaching a historical...
Global debt levels, both sovereign and corporate, approaching a historical US$227 trillion. Among developed nations, debt surged above 432% of GDP in the Q3, a 50 basis points increase from 2019. In emerging markets, debt levels rose to over 248% of GDP, with Lebanon, China, Malaysia and Turkey experiencing the biggest rises in non-financial-sector debt.
Given the vast number of underlying opportunities remaining as...
Given the vast number of underlying opportunities remaining as we approach the new yea r, the best means of capitalizing on them is through unit trust products. Barita’s suite of Unit Trust products, namely FX Bond Fund, Capital Growth Fund, FX Growth Fund, Money Market Fund, And Income Portfolio allows investors to gain exposures to these opportunities at much lower cost versus direct exposure, benefit from diversification and the guidance of certified portfolio managers who have the wit and the capabilities to realize such opportunities.
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