Invest
8 factors set to impact the economy into 2021
There are a number of major factors that investors should be wary of as the economy and sharemarkets begin their recovery from the COVID-19-driven downturn.
8 factors set to impact the economy into 2021
There are a number of major factors that investors should be wary of as the economy and sharemarkets begin their recovery from the COVID-19-driven downturn.
NGS Super’s chief investment officer, Ben Squires, said in an update that “there remains good reason to maintain a cautious outlook given the risks associated with a second COVID-19 outbreak and the uneven recovery globally”.
And while it is unlikely that mid-March lows would be repeated, markets could still weaken if social distancing measures do need to be retightened, he added, such as what has been seen in Victoria.
While the one-year performance of the S&P ASX 200 was down -11.14 per cent as at 19 June 2020, Mr Squires flagged that the global sharemarket performance – as measured by the MSCI World ex Australia USD – “had recovered most of the losses”, posting a 1.55 per cent improvement.
This may appear to conflict with weak economic activity figures, but the chief investment officer commented that “history shows us that this disconnect between sharemarkets and economic activity is not uncommon prior to a recession end”.
Here are the eight “key” factors the chief investment officer and NGS Super think will have the biggest impact on the economy and sharemarkets over the next 12 months.
1. Improvement in economic activity as social distancing measures become more relaxed
2. The resumption of overseas travel in 2021
- Mr Squires does expect this to remain subdued as additional quarantine measures may impede international travel demand.
3. A permanent shifting of consumer preferences
- According to the CIO, demand for domestic travel could be forever changed, alongside remote working practices and consumption preferences.
4. Volatility will remain high
- Sharemarkets will continue to show movement, with Mr Squires acknowledging that there may be some correction still to come in the recovery phase.
5. Monetary policy will remain open
- Low interest rates can still be expected.
6. Inflation will remain low
- This is because excess capacity in the economy will be absorbed, the CIO said.
7. Unemployment rates to stay high
- This will be the case for the remainder of 2020, but Mr Squires indicated that 2021’s economic activity recovery should aid in employment growth.
8. Globalisation has “peaked”
- “This may lead to changes in supply chain management and company inventory levels and local manufacturing,” Mr Squires indicated, explaining how forward-thinking companies may focus more on resilience rather than cost and efficiency.
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