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2020 Market Review and 2021 Outlook

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2020 Market Review and 2021 Outlook 04 January 2021 2020 MARKET REVIEW AND 2021 OUTLOOK The year 2020 for financial markets can be summed up in two words: volatile and unpredictable. The world was taken by storm covid-19 pandemic. The global economy witnessed fastest ever economic slowdown, and in some cases recession, since at least the World War II (WWII). Covid-19, the disease caused by coronavirus, which as per the latest statistics has infected 80mn people worldwide and has caused more than 1.5mn casualties, dominated the year’s key events. Lockdowns, which started in China, quickly spread to Asia and then to Europe, and in the end in US, caused the global economy to come to a halt with global activity falling by over a quarter at its peak. Many top institutions succumbed to the pandemic, travel and tourism halted, oil price (Brent) went below USD 20/bbl., bankruptcies increased and millions of people lost their jobs. This unprecedented economic halt kick started a massive policy response from world majors, with the US Federal Reserve (the Fed) swiftly cutting rates to zero and other central banks quickly following suit. The US Fed, ECB and other central banks expanded existing asset purchase programs and, in some cases, initiated new ones. Low interest rates and abundant liquidity in the markets because of trillions of dollars of stimulus led to a V-shaped recovery in most markets. Also, the markets across the globe witnessed a new wave of young and first-time investors, largely as a result of work- from-home situation fueling a desire to earn extra income during challenging times. 1968-1969 2009-10 2012-2020 Hong Kong flu Swine Flu MERS 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 1957-1958 2002-2003 2019-21 1918-1919 Spanish Flu Asian flu SARS Covid-19 2014-2016 Ebola Pharmaceutical and biotech companies across the globe rushed to find an effective vaccine for covid-19, with some of them defying the long vaccination trial protocols and successfully delivering a vaccine with over 90% efficacy. While only a handful have received regulatory approvals, many companies are expected to roll out vaccines by the middle of next year. Governments and central banks shelled out over USD 20 trillion since the corona-virus erupted to "put a floor under the world economy," according to the International Monetary Fund. Governments announced nearly USD 13 trillion in stimulus measures and central banks chipped in at least USD 8 trillion to soften the impact of the pandemic on their economies. Almost similar policy response was witnessed in the GCC as well with rate cuts, stimulus and moratorium on loan repayments being the common response by all GCC countries. With this materializing, the GCC markets ended mix with some ending in green while some in red. Saudi Arabia led the GCC markets and ended at the top while Kuwait remained as the laggard ending the year most negative. Qatar also ended in green also largely led by expectations of thaw in relationship over the blockade which was introduced in 2017. While most stock markets were on fire post-Government announcements of unprecedented economic support packages, the MSM30 Index continued on its sideways pattern, staying roughly between the lowest level seen this year at 3383.54 and the highest level seen at 3780.75. 1 P.O.BOX 1137, PC 111 – CPO, Sultanate of Oman l CR No. 1279406 l Tel: +9682494 9000 l Fax: +9682494 9099 l Email: [email protected] l Web: www.u-capital.net ASSET CLASS PERFORMANCE IN 2020 S&P 500 Index (SPX) Gold Price (USD per 100oz) 4000 2100 2000 3600 1900 3200 1800 2800 1700 1600 2400 1500 2000 1400 2-Jul-20 31-Jul-20 2-Jan-20 2-Jun-20 2-Oct-20 31-Jan-20 2-Feb-20 2-Apr-20 2-Sep-20 30-Jun-20 2-Dec-20 31-Oct-20 2-Aug-20 29-Feb-20 30-Apr-20 30-Sep-20 31-Dec-19 31-Dec-20 2-Nov-20 2-Mar-20 31-Aug-20 30-Nov-20 2-May-20 31-Mar-20 31-May-20 Bitcoin/USD Cross Rate Brent Crude (USD/barrel) 35000 70 28000 60 21000 50 14000 40 7000 30 0 20 2-Jul-20 2-Jan-20 2-Jun-20 2-Oct-20 1-Jul-20 2-Feb-20 2-Apr-20 2-Sep-20 2-Dec-20 2-Aug-20 2-Nov-20 1-Jan-20 2-Mar-20 1-Jun-20 1-Oct-20 2-May-20 1-Apr-20 1-Feb-20 1-Sep-20 1-Dec-20 1-Aug-20 1-Nov-20 1-Mar-20 1-May-20 S&P GCC Bond & Sukuk Index USD Index 160 105 150 100 140 95 130 90 120 85 110 80 31-Jul-20 31-Jul-20 31-Jan-20 30-Jun-20 31-Oct-20 31-Jan-20 29-Feb-20 30-Apr-20 30-Sep-20 30-Jun-20 31-Dec-19 31-Dec-20 31-Oct-20 31-Aug-20 29-Feb-20 30-Apr-20 30-Sep-20 31-Dec-19 31-Dec-20 30-Nov-20 31-Mar-20 31-Aug-20 30-Nov-20 31-Mar-20 31-May-20 31-May-20 Source: Bloomberg 2 P.O.BOX 1137, PC 111 – CPO, Sultanate of Oman l CR No. 1279406 l Tel: +9682494 9000 l Fax: +9682494 9099 l Email: [email protected] l Web: www.u-capital.net EXPECTATIONS FOR 2021 Vaccine: We believe many successful vaccines will be announced by pharmaceutical companies against COVID-19, which will aid the global markets in recovery. However, the logistics of delivery of the vaccine and vaccinating a mass population will be challenge which will continue not only in 2021 but in 2022. The International Air Transport Association (IATA) calls the process the “largest and most complex global logistics operation” ever undertaken, it will be up to governments to ensure the infrastructure and air routes are ready for this phase. Global Growth: After a 4.4% decline in 2020, global GDP is projected to increase about 5.2% in 2021 as per IMF. Global economy will enter 2021 at a subdued growth rate and is expected to accelerate in the second half. Headwinds to robust near-term growth include COVID-19-related lockdowns in early 2021, new and stronger strains as seen in UK to put brakes, consumer sentiments to take time in picking up and the strains of rising public and private debt. Yet, the reopening of economies and the availability of vaccines will gradually unleash a new wave of spending on travel and services. US: US economy is expected to start 2021 slowly and accelerate in the second half. The US economy has partially recovered from its worst downturn since the Great Depression. However, a new wave of COVID-19 infections, the possible re-imposition of lockdowns to contain the virus, and waning stimulus from pandemic relief measures enacted in 2020 threaten to undermine growth through early 2021. The US dollar is expected to weaken in 2021 in a lagged response to the Fed's sharp pivot to monetary accommodation in early 2020, an increase in investor risk tolerance, and a widening trade deficit. Europe: The European economy is projected to contract by 7% in 2020 and rebound by 4.7% in 2021 as per IMF. Headline inflation is projected to soften to 2% in 2020 1 percentage point below its 2019 level. The outlook is exceptionally uncertain. The ongoing resurgence of infections across Europe presents perhaps the greatest downside risk at this stage. China: China is among the few countries to actually have grown in 2020, unlike the rest of the world, which has been in recession throughout 2020. China is also on track to expand by more than 7% in 2021. We believe growth in china is instrumental for global economic growth and for broader and better equity market performance. Oil: Oil prices are expected to average between USD 50-60/bbl in 2021, higher than the average of USD 43/bbl in 2020 mainly on the basis that capital expenditure to the tune of USD 400bn has been cut by the global oil producers which will lead to squeeze in supply. GCC: GCC region is expected to do well compared to 2020. Better oil price outlook, cost control measures adopted by the government, focus on foreign investment and expectation of thaw in relationship between some of the aggrieved countries will prove beneficial to the region. Equities: Equities continue to be best positioned to benefit from the economic recovery coupled with the continued low interest rate environment and supportive monetary and fiscal policy. Tourism: Tourism is one of the key industries that suffered because of the pandemic. Coming into 2021, we believe revival of the industry, however we expect completely recovery in the industry to the levels of pre-pandemic not to be reached before 2022. Fintech and Artificial Intelligence: Fintech and Artificial Intelligence led development which picked up pace in 2020 due to Covid-19, will accelerate rapidly going into 2021. We expect, individuals and corporate to increase spending on such measures to lower their costs in the long run. Entrepreneurship: The pandemic will unleash a new wave of entrepreneurs. As seen historically, in last global financial crisis which set off a wave of entrepreneurialism, as high unemployment encouraged would-be business owners to pursue their great idea rather than rely on a turbulent job market. We can expect the same when the dust settles from this crisis.
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