- The year 2020 saw many panicked investors withdraw from the stock market and are now hoping to recover their losses in 2021.
- Investment managers say there will be bumps and unexpected twists and turns on the road this year too, but things are looking up.
- Investors should, however, not forget the hard lessons of long-term investing that 2020 taught them.
After a year that left many consumers' investment portfolios struggling to recover to pre-Covid-19 levels, after the mass sell-off which followed the March 2020 market bloodbath, investors are surely hoping that 2021 will be a better year.
Investment and wealth analysts, however, say the 2020 woes are drawing to an end, but investors should still expect some "bumps in the road" this year.
"The road to recovery, both abroad and at home, is not going to be a straight line, nor will it be smooth. There will be bumps in the road, both financially and economically, and unexpected twists and turns," wrote Old Mutual Wealth investment strategists Izak Odendaal and Dave Mohr in their first investment note for 2021 on Monday.
Old Mutual Wealth is forecasting real growth of between 3% and 4% in South Africa this year - but most of it will be the "snap-back" from 2020's big contraction, they said.
"Only towards the end of the year will we know whether there is renewed underlying vigour in the economy," wrote Odendaal and Mohr.
Given how Covid-19 has evolved since the virus was first discovered in China in late 2019, making predictions on how markets may move, and ultimately how this will affect investment returns, has become difficult.
The two investment strategists say the "humility" this brought demands they look at the factors that will affect economic recovery and, by extension, investment returns instead of making predictions.
What's different in 2021
One of these factors is the development of the virus itself. A second wave of infections and new variants of Covid-19, found in countries like South Africa, Japan and the UK, have already forced several countries to re-impose strict lockdown restrictions.
Economically, the impact of these new lockdowns has, however, been less severe as the powerhouse that is the US had less restrictive measures this time, while China has not experienced a second wave, said Odendaal and Mohr.
In his note on the impact of the second wave on economic performance, Sandy McGregor, portfolio manager at Allan Gray, agreed the second wave has had a far more adverse health impact in many regions, but its economic consequences have been less severe.
The less restrictive lockdown in South Africa means that many sectors, save for hospitality and tourism, continue to operate with little hinderances. McGregor pointed out mining and agriculture as some of the best performers.
Because of this, the commodity price gains of 2020 have continued into 2021 after a decade-long of declines. When expressed in US dollars, commodity prices in the second week of January had reached the all-time highs experienced early in 2012, pointed out McGregor.
A lot of academic research has been done on how the commodity price boom affects the South African economy. There is a general appreciation that commodity prices and stock prices of mining and metal companies move together, but Odendaal and Mohr said it goes beyond that.
"It is hard to overstate the importance of higher dollar commodity prices for the local economy, the fiscus, the rand and the stock market. The FTSE/JSE All Share Index hit a new record high last week, while the rand has recouped most of its early 2020 losses," read their note.
The pair said other factors that will determine the recovery of the economy and the stock market are policy and politics in the US, whether the dollar continues to weaken this year and the performance of the US technology shares, given their outperformance since the pandemic began.
Taking lessons from 2020
Debra Slabber, portfolio specialist at Morningstar Investment Management SA, said already in 2020 global and local equities, bonds, gold, commodities and even bitcoin delivered positive performances, despite the widespread job losses and the biggest global economic contraction in almost 90 years, thanks to the news of the rollout of a vaccine.
She said 2020 left many lessons that investors will need to apply this year. One of these is the adage that what comes down will go up.
Slabber has compiled a graph, which shows that as bad as 2020 may appear to have been, it had one of the shortest bear markets recorded, spanning over just 33 days.
So, investors who decided to withdraw their money when the stock market fell sharply, missed out on the recovery that has seen most markets climb to all-time highs.
"Let us not forget the lessons we learnt in 2020 as we face the new year that will bring its own challenges and uncertainties," wrote Slabber in her first investment note for 2021.