It’s been a wild year for investment. That’s not to say it hasn’t been quite a wild year regardless, however, the world economy has been on something of a prolonged cryogenic freeze whilst the international community have been getting to grips with the global pandemic.
There hasn’t really been anywhere in the world that hasn’t been affected and, by extension, that’s meant that there hasn’t really been an economy that has come through unscathed.
It could be argued that Australasian countries such as New Zealand and Australia are up there with the countries considered to have done the best job at containing the coronavirus along with the likes of Taiwan and South Korea. However, in an age of globalisation and international trade, they haven’t managed to completely escape the economic fallout.
For some areas the shock and subsequent recession have been more pronounced than expected, and for others it’s been much less worse than anticipated.
For assets and investment classes, it’s been a very mixed bag. With the world now beginning to emerge from the fog and mist of the pandemic thanks to the miracle of science and vaccinations, we’re assessing three of the main investment classes and how they’ll stack up in 2021.
Stocks and shares have seen most of the received knowledge and rules of the market completely turned on their head in the past 12 months.
At the beginning of the pandemic most investors decided to follow established patterns and look to invest their money into safer, lower risk growth stocks that, whilst not offering impressive returns, would at least ride out the pandemic by growing quicker than inflation.
Other higher performing tech stocks and more fashionable accelerator stocks were considered too risky, and in a potential recession economy it was expected they’d struggle, and their momentum would fizzle out.
The exact opposite happened, and the rule book was torn up, with tech stocks shooting through the ceiling and classic growth stocks struggling to even outgrow inflation. It’s been a year of immense unpredictability in these markets and there’s little to suggest that will end this year.
Bonds & yields
Government bonds, essentially lending the government money, has always been popular in times of uncertainty and rising bond yields usually signify that investors expect economic turbulence.
With that in mind it was usually a safe bet that if you put your money into government bonds in uncertain times you won’t make an impressive return but you’d at least earn more than inflation and earn a small and steady income.
Unfortunately, due to the aftermath of the 2008 financial crash most central banks across the world including the Bank of England and the Fed in America are running the lowest base interest rates in modern history, and with these central banks buying up most of these government bonds with quantitative easing, bond yields have been largely flat throughout the entire pandemic, apart from the past few months where they increased ever so slightly.
In contrast to these other classes, property has gone from strength to strength, and certainly in the UK as demand and prices have shot through the roof.
There were many who expected that we could see stagnation or even a fall in property prices and rental demand as pandemic restrictions were introduced last spring. This wasn’t an outrageous expectation that with everybody essentially told to stay at home that would have something of a dampening effect on demand and growth.
However, what happened was an explosion in demand as the pandemic put housing and living spaces into sharp focus and suddenly at the top of most people’s priority lists. Supply couldn’t keep pace due to construction largely being on hold, and so demand squeezed the property supply markedly, with prices and rents following suite.
Further to that, government measures to stimulate the market such as a stamp duty holiday and tax brakes moved things into overdrive, with many landlords expanding portfolios and many others entering the market for the first time.
What resulted was many areas in the UK seeing house price rises above 8% for the year, and rental increases reaching double figures. Yields too saw big increases with demand rising.
Far from this being a flash in the pan, many are predicting this trend will now continue late into 2021 and through to the new year in 2022 as the economy bounces back. With that in mind, it’s fair to say that of all these investment vehicles, property remains the strongest by some distance.