COVID-19 has created a financial bazooka for the global economy. Markets are going through an interplay between epidemiology and economics. Governments are having to trade off between healthcare and economic care. Around 60-73 million people have lost their jobs globally. So the big question is: Is the global economy heading for reset and following the new world order?
I would say yes. The digitalisation of economy and assets is happening at a phenomenal speed, and there are a few noticeable variables coming into the global markets.
- Digital passport (healthcare passport) is going to be introduced.
- QR will be mandatory in your mobile.
- Paper currency will be replaced by digital currency.
- Vaccines and chips details are required for all financial market transactions.
- Technology takes the center stage. AI/EV/5G will become very significant.
Pivot moves to emerging markets – game of growth
Long-term investors who are hunting for yields are heading to emerging markets (EM). The latest report from UBS Wealth Management points out that global investors added a net US$53.5 billion (RM216 billion) to holdings of emerging market equities and bonds in January 2021.
The performance of EM assets has nonetheless been mixed so far this year, with EM stocks outperforming the global market by 5 percentage points while EM sovereign bonds are down 1% year to date. Despite this ambivalent outcome, we at Juwai IQI see several reasons why investor optimism over emerging market assets is justified.
First, inflows into emerging markets look set to continue. EM assets typically benefit from risk-on sentiment among investors, which we expect to be supported by evidence of a broadening of the global economic recovery, vaccine rollouts, and an additional US stimulus package.
EM equities should benefit from strong earnings momentum and attractive valuations versus developed markets. EM credit offers attractive yields in a low interest rate regime. We continue to see scope for EM value to outperform overall EM equities and are positive on China, Egypt, Indonesia, Malaysia, Mexico, Pakistan, Peru, the Philippines, Qatar, Russia, South Africa and Latin America.