There’s no doubt that the coronavirus pandemic has had a huge impact on an already restricted global economy, with negative growth of -4.9% forecast for 2020. According to the IMF, this is 1.9 percentage points lower than the forecast published in April 2020, although a relatively sharp recovery is being predicted for the following 12 months.
Interestingly, the world’s financial markets have experienced far more peaks and troughs during 2020, with November representing the latest hikes for major indexes such as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite (which all reported double-digit growth in a four-week period).
But what will 2021 bring for the world’s financial markets? We’ll explore this in detail in the post below, by looking at the key trends that will impact on growth during this time.
The global rollout of a coronavirus vaccine
The accelerated route to a coronavirus vaccine has been one of the true success stories in 2020, with the first UK recipient having received a dose of the Pfizer vaccine earlier this week.
This is the first of three viable vaccines to have been formally approved, and in the coming months we could well see others rolled out as part of a large-scale global endeavour.
This will definitely benefit the global stock markets from the beginning of Q1 in 2021, as the widespread vaccination of communities would provide a significant boost for equity demand and lead to small-scale corrections in a handful of examples.
More specifically, access to an approved vaccine will re-energise equity demand for the sectors that have been hardest hit by coronavirus (such as aviation and tourism), while tech stocks that have seen accelerated growth in 2020 (like Zoom) will continue to experience a correction in the near-term.
Political factors such Biden’s election and Brexit
Despite the intense but so-far futile efforts of Donald Trump, Democratic candidate Joe Biden remains on course to be sworn in as the 46th US President on January 21st, 2021.
At the same time, the UK and the EU appear to be heading towards a no-deal Brexit, with both parties seemingly poles apart on issues such as fisheries and the so-called “level playing field”.
Both of these events will impact directly on the financial and forex markets, albeit in very different ways. For example, Biden’s decisive election win already caused US stock indices to soar in November, while his formative Presidency would most likely see this trend to continue into Q2 2021.
The same cannot be said for Brexit, however, with a no-deal scenario undermining British and European shares while also causing the EUR/GBP currency pairing to trade in a depreciating range. This trend is set to continue indefinitely, creating huge opportunities for day traders and issues for anyone with a longer-term investment perspective.
The rise of digital transformation
It has been estimated that the coronavirus and associated lockdown measures have driven a huge increase in ecommerce sales during 2020, adding an estimated £5.3 billion to the UK economy alone.
A similar rate of acceleration has been observed across all digital transformation firms and technologies this year, with this borne out by a wide scale survey commissioned by Cloud communications platform Twilio.
Overall, Covid-19 is thought to have sped up digital transformation by approximately 5.3 years, creating a positive outlook for associated stocks in 2021 and beyond.
While this blanket space includes firms and stocks such as Zoom (which we have already touched on), these assets have significant long-term growth potential that shouldn’t be ignored by investors.