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2021 started off on an optimistic note. Many countries had begun to roll out COVID-19 vaccination campaigns and the newly-elected US President Joe Biden was expected to spend heavily to support the US economy. We had looked forward to the easing of restrictions and had even harboured some hope of travel by the end of the year.
Fast forward to June 2021, and we find ourselves in a world that continues to grapple with COVID-19 as a result of the emergence of new variants. However, we did see a spectacular economic recovery in H1 2021 and expect the outlook for H2 2021 to remain bright. This is because loose monetary and fiscal policies will continue to support a strong global economic recovery.
Even as the global economy gets back onto its pre-COVID track, longer-term trends such as digitalisation, sustainability, innovation and rising middle-class consumption will remain key drivers of economic growth. The convergence of specific Megatrends, where advances in one enable breakthroughs in others, generates investment opportunities – a case of the whole being greater than the sum of its parts.
Consequently, this buoyant recovery backdrop also paves the way for inflationary pressures to build. Inflation is often seen as a sign of economic recovery – in and of itself, a positive development. But it is also a metric for central banks to begin removing stimulus measures, which can lead to higher interest rates, lesser liquidity and subsequently lower asset prices. As a result, we will likely see volatility in financial markets.
As investors, inflation can work in our favour: Late-bloomers, such as US Financial and European equities, offer opportunities fuelled by the same recovery that drives inflation. These laggards are now catching up and the momentum should continue for the rest of the year.
However, as economic growth moderates later this year, inflationary pressures will likely ease. Markets may once again favour growth-oriented early-risers such as Asia ex-Japan and high-quality US growth equities, which had initially led the post-pandemic recovery. It is important for investors to remain flexible and look at the larger investment narrative to adjust their exposure at the right time.
The strong economic recovery is expected to propel equities higher in 2021, but the ride may be bumpy as investors worry over when central banks will start ‘taking the punch bowl away’. A resurgence of COVID-19 cases, possible US tax increases and rising geopolitical tensions surrounding China are other potential risks to watch out for.
This is why our Risk-First approach is an integral part of our advisory process – we guide you to find the right asset mix so you can stay invested even amid uncertainty.
As we reflect on the investment landscape at this mid-point of the year, I welcome you to explore the individual, diverse parts with their own narratives even as we help you piece them together to see the big picture of a world in transition. This big-picture perspective is essential for making sense of the overall investment outlook – so you can position your portfolio to capture the right opportunities at the right time.
I hope you will continue to stay safe as we collectively look forward to that long overdue trip.
Singapore Head, Wealth Management Advisory
Deposits and Wealth Management
Personal Financial Services