The best and worst asset classes of 2020, and what to expect in 2021

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Precious metals have been one of the best performing asset classes this year. In particular, the yellow metal is leading the pack with a 24% return since the start of the year (as of December 17).

A weaker dollar, lower interest rates, global uncertainties and government stimulus were the main catalysts for gold’s momentum.

Stocks and ETFs

The heightened appetite for risk, particularly in the last few months of 2020, has seen investors flock to riskier assets like stocks, particularly the US, Asian and some Middle Eastern stock markets. In the United States, the Dow Jones Industrial Average has risen 6.1% so far, the S&P 500 by 15.2% and the Nasdaq Composite Index by 42.2% (as of December 17 YTD). Major Asian stock markets such as the Nikkei 225 rose 13.3%, the Shanghai Shenzhen CSI 300 index up 22%, the MSCI AC Asia Pacific index up 17.6% and the S&P Sensex up 13.6% year-on-year (as of December 18).

In the Middle East, the Saudi Stock Exchange, Qatar Stock Exchange and Abu Dhabi Stock Exchange posted positive returns, up 3.9%, 0.5% and 1.54%, respectively, to now this year (December 17th). Since November, the recovery in global stock markets has been mainly fueled by two factors – the victory of President-elect Joe Biden and the hope of a COVID-19 vaccine by spring 2021.

Riding the wave of equities, Exchange Traded Funds (ETFs) also recorded one of the best performing years in 2020. Some of the top 10 ETFs in the world recorded higher net inflows and positive YTD yields up to now. It is estimated that more than $ 427 billion has been invested in the US ETF alone this year.

Fixed income

In risk-adjusted terms, fixed income instruments have performed very well overall, with positive returns since the start of the year after recouping losses in the first quarter. In particular, US corporate credit and Chinese debt have both generated high single-digit returns in US dollars since the start of the year.

“The former benefited from sharply declining Treasury yields thanks to aggressive monetary easing by the Federal Reserve, the latter from a higher and attractive starting level of yields as well as currency gains”, Sophie Chardon, senior strategist cross-asset, Lombard Odier, mentioned.

… and DELAYERS

On the other side of the coin, the asset classes hardest hit by the lockdowns have been the worst performers so far this year, according to market experts.

Crude oil futures have been one of the hardest hit. The two benchmarks for oil, WTI Brent crude futures, are down around 20% and 22% year-to-date, respectively, on December 17.

The next big loser is European equities. Given the poor economic outlook for Europe, the main European indices have gone into negative territory since the start of the year, with the FTSE 100 losing – 13%, the IBEX 35 down 16%, the CAC 40 in down 7.5% and the Euro Stoxx 50 down 5% (as of December 31). 18).

Commodities, with the exception of precious metals, are the next asset class to generate negative returns for investors this year overall. Major global commodity indices such as the Refinitiv / Core Commodity CRB (R) index are down 10.1% year-to-date.

In the foreign exchange market, the US dollar continued to weaken this year and hit its lowest level in two years amid strong stock market performance.

Next come mutual funds which, unlike ETFs, were among the worst performing asset classes this year. U.S. mutual funds alone have lost an estimated $ 469 billion in assets this year, according to estimates.

Outlook for 2021

The outlook for 2021 remains difficult and largely depends on the ability of economies around the world to absorb aftershocks from the pandemic. Equity valuations remain inflated, bond yields are squeezed while corporate earnings forecasts remain unclear.

Added to this is the high rate of Covid-19 infection in some European countries as daily cases reach new highs in the United States.

“For 2021, expect an uneven recovery dependent on regional management of the pandemic and the stock sectors likely to benefit or suffer from it,” said Mehvish Ayub, senior investment strategist, State Street Global Advisors. Zawya.

“Despite high valuations, US equities remain supported by earnings and sales and the outlook remains favorable over the medium term. European stocks have started to recover given the vaccine news, but will need economic momentum and earnings to follow, ”she added.

Michael Bull, chief investment officer at Quilter Cheviot, agrees: “Assuming the US government remains divided and we see another significant fiscal stimulus, it’s certainly possible that we see strong performance in US markets. “

As for gold, with the outlook for a global economic recovery looking uncertain, the yellow metal should retain its appeal as a safe haven next year, analysts say.

However, declining geopolitical risks could weigh against it.

“Headwinds for gold include any lessening of geopolitical risk that the Biden administration can provide, particularly if Biden takes a more conciliatory tone regarding Chinese trade relations and the respite a vaccine would provide,” Michael Taylor, official global front office, ADSS, an Abu Dhabi-based brokerage house, said.

Likewise, the performance of long-term treasury yields in 2021 depends on the direction of the US economy, trends in Covid-19, and vaccine development. If Covid-19 fears resurface, investors could once again flock to bonds which could put pressure on yields.

On the other hand, some analysts even argue that 2021 could see a turnaround in the performance of asset classes.

“The asset classes that are likely to perform well are real estate, equities, industrial commodities and high yield credit,” said Paul Jackson, global head of asset allocation research, Invesco.

“I expect government bonds and gold to underperform,” he added.

Crude oil is another asset that could see a rebound in late 2021, analysts say.

“Oil will see a resurgence in demand, and already the Pfizer vaccine news has seen crude post a stellar week. We believe this should continue, but the downside risks to a price rebound remain if OPEC + increases supply, ”said Sherif El-Haddad, head of asset management, Al Mal Capital.

Overall, the outlook for 2021 hinges on a few key factors, such as the course of the pandemic, the global interest rate, stimulus packages, and the shape of the US economic recovery. Signs of recovery and earnings growth could see investors increase their exposure to cyclical assets, while an increase in Covid-19 cases, geopolitical risks and uncertainties could cause a flight to safety.

(Reporting by Sunil Kumar Singh; editing by Seban Scaria)

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Disclaimer: This article is provided for informational purposes only. The Content does not provide any tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer here.

© ZAWYA 2020


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