As always at the start of the year, all sorts of forecasts are sprouting like mushrooms in the financial world and the media associated with it.
It usually sounds something like this: how will the economy and the stock markets fare under the influence of coronavirus? And it gets ever more granular: which investment areas should you favour in the new year? All the way to the truly daring questions: where will the DAX stand at the end of the year? Which stocks will be the winners of the year? The reasoning behind the answers often sounds plausible, but it obscures the fact that even the most probing analyses – and decades of capital market experience – cannot deliver reliably accurate answers, least of all after such an extremely turbulent and utterly unpredictable investment year as 2020.
Despite all this, we too would like to take a look today at the current conditions on the capital markets and share our view of what we believe will preoccupy and move the markets in the short to medium term. We do this despite the fact that we consider most conventional forecasts – which often tempt investors into very high-risk investment decisions – to be superfluous, indeed even dangerous. Our goal is rather to get you in the right frame of mind for the investment year and, with our thoughts and explanations, to protect you from precisely that kind of hasty action or supposedly red-hot investment tips (such as the Bitcoin investments currently in high demand but not seriously recommendable).
In summary, we currently assess the situation as follows:
Equities: The strong price rally of recent months certainly suggests that the stock markets have already handed out some advance credit for a sustained recovery in the economy and in corporate earnings (in the post-coronavirus era). Nevertheless, and despite the uncertainties surrounding the coronavirus that undoubtedly exist, in our view the positive factors outweigh them and hold enough potential for another positive year for equities – even if the (stock market) trees are unlikely to grow to the sky. A lack of alternatives, government spending programmes, ultra-loose monetary policy from the central banks and, not least, the vaccination campaigns launched worldwide remain powerful allies of the equity markets.
Bonds: A probably rather bumpy bond year 2021 lies ahead of us. Many bonds regarded as safe now no longer generate any return. A positive return is only available if the bond investor takes on more risk – that is, chooses very long maturities (which increases volatility risk when interest rates change) or makes concessions on the creditworthiness of the bond issuer (which increases volatility and repayment risk). Despite the rather muted outlook, bonds (broadly diversified across maturities and credit ratings) remain, thanks to their special characteristics (predictable cash flows, less prone to fluctuation), an indispensable portfolio component for stabilising a broadly positioned portfolio.
quirion invests your money in a broadly diversified way in the capital markets – across more than 60 countries and in 8,000 companies. Here you can find out more.
