2021 Investment Outlook for SMEs: Investing in the recovery cycle

At a time of high optimism for global markets as the pandemic begins to ease and economic recovery accelerates, SMEs looking to invest in banking assets should be on the lookout for opportunities in equities, commodities, and corporate bonds. And as Asia in particular rebounds strongly, the region deserves special attention. Anthony Raza, Senior Director and Head of Multi-Asset Strategy for United Overseas Bank (UOB) Asset Management shares his insights and thoughts on the investment outlook for SMEs, what they should look out for, and where the opportunities lie.

Read on below for more in-depth SME insights

Widespread vaccine rollouts and access to financial capital are leading to a greatly improved outlook for global investment markets, which are poised to strongly rebound in 2021. As nations’ health continues to improve, markets are also picking up, creating new opportunities for small to medium-sized enterprises (SMEs).

As we move into the second half of the year, SMEs should be on the lookout for several emerging trends, say experts at UOB. At the same time, they suggest a number of key solutions and strategies that your company should keep in mind when you consider where to invest in the coming months.

The future looks bright

The progress of ongoing COVID-19 vaccine rollouts bodes well for equities, commodities, and corporate bonds according to Anthony Raza, Senior Director and Head of Multi-Asset Strategy for UOB Asset Management, who notes three trends which are potentially supportive of healthy markets in 2021.

• Continuing vaccine rollouts.
• The growth of gross domestic product (GDP) and corporate earnings.
• Low interest rates.

These and other economic factors are leading to strong levels of growth in GDP and corporate earnings, pushing many companies’ returns to 20-year highs. In addition, the general consensus in the financial industry has continued to be optimistic over the past few months, as reflected in steadily improving forecasts. As a result, 2021 appears set to be a year in which the economy will strongly rebound.

Despite the fact that worldwide markets are already enjoying a healthy rebound, nations’ central banks are committed to maintaining low rates for at least two more years – helping drive continuing economic development.

Selecting equities, bonds and other assets

Of course, SMEs still need to be smart about picking financial investments, and careful where they place every dollar. This means having to be both strategic and highly focused when choosing asset classes to invest in.

The global economy is moving through an economic cycle of expansion, to slowdown to recession to recovery, as Raza points out

The data is clearly pointing to the fact that we are the early years of the recovery cycle, the asset classes that perform best are growth asset classes like equities, corporate bonds and commodities.

Moreover, different types of asset classes can achieve strong performance at every point in the cycle. At present though, he says it’s clear that the market is still in the early recovery stage, and recommends focusing on equities which look to be top performers.

However, at the same time – Raza believes that central banks will remain committed to low rates – SMEs would also do well to explore investing in corporate bonds. These are often preferred by investors with lower risk tolerance and promise stable returns.

Asia comes into focus

Global growth is expected to pick up in the months ahead and Raza believes that Asia warrants particular attention. Asian equities – which traditionally perform strongly when global growth is buoyant – and Asian fixed income yields will continue to remain higher than other regions. In addition, with export growth rising and the US dollar not overly strong at present, the signs point to continuing growth in the region in coming months.

Asia sits right at the crossroads of many global megatrends that have captured investors’ attention. A case in point is that Asia continues to lead the way in many key technology developments. Asia’s middle class is also experiencing a boom in growth and spending power, promising to add to the region’s quickly rising economic influence.

US and China relationship

While the United States’ – and the Biden administration’s – relationship with China isn’t expected to turn friendly overnight, diplomatic relations between the nations are evolving, says Raza. For businesses and investors alike, this means that China is likely to become a more opportune area for investment going forward. Raza predicts that while friction between the two countries is expected to remain high – and investors will have to continue to monitor risk factors – the Biden administration is more likely to take a more multilateral approach to defusing these tensions and using more diplomatic channels to achieve progress in the years ahead.

Investing for the future

Overall, 2021 is anticipated to be a healthy year for investors across a wide variety of asset classes, states Mervyn Koh, UOB’s Country Head of Business Banking for Singapore. This means that SMEs will have much to consider as they strategise their investments and craft a diversified and future-focused portfolio.

The good news is that whatever strategy you choose to adopt, the market as a whole is set to move upwards – even if it may, at times, be difficult to predict. Bearing this in mind, a well thought-out and measured approach to your investment strategy will be called for in the face of ongoing economic volatility. UOB’s advisers remain ready and able to assist you with all your investment needs.

Contact us to find out more about UOB’s Investment solutions for SMEs.