As we enter into Year 2021 with lots of hope, various world-class analysts has came up with views and expectations for the Year 2021. What I remember clearly in Q3 and Q4 2020, we were often told that World's GDP will be the greatest at 3+%, which is never seen for the past 10 over years. Malaysian economy was 'expected to grow at 7%!'. Fueled with such optimism, we ended Year 2020 with pretty good returns in the stocks and indexes for almost all major stock markets.
However, as the days continue to pass in 2021, we realized that reality is fundamental will 'rationalize' the stock prices. Those who overshot their fundamental will have a pullback and those undervalued ones will play catch up. The recent political developments, rising COVID19 cases and resumption of Regulated Short Selling does a big impact on Malaysian stocks.
In this article, I will share my thoughts and views on how 2021 will likely pan out. None of us have a crystal ball hence we are 'guesstimating' and 'forecasting' and after that place 'our bets' in the stocks or financial instruments that we believe will do well.
1. GDP Growth
My personal view is that the world's GDP will not bounce back >3% as per the optimistic economists think. The reason is due to point no. 2 on vaccine. Demand destruction sometimes is harder to recover and it will definitely take time. However, as Year 2020 caused the world's GDP to drop to a level where we were 2 years ago; from the lower base, it's definitely expected that the world's GDP will continue to rise but at a slightly more moderate ~2.8-3% instead of >3% that some economist forecasted.
The caveat is however if Oil Prices (both Vegetable and Crude) keep increasing, it might cause a higher GDP (as a lot of countries like Saudi, Malaysia, Brunei's GDP as very tied to commodity prices). The more bullish economists of >3% might come true should Crude Oil stayed above USD55bbl and Soy and Palm Oil being the largest vegetable oil stays elevated for a longer period of time.
2. Vaccine and COVID19
The vaccine roll out will be quicker in more developed countries (it's currently proven that mRNA technology is more effective and it needs colder storage temperature). However, the poorer countries will have difficulties accessing. This will continue to cause more lockdowns, more death and lower productivity as work places will need to shut down, movements of people being restricted to slow the spread of the virus.
I believed that COVID19 vaccines based on mRNA will be more successful than the traditional approach of muted virus and cause less side-effects. The downside is the logistical and storage temperature challenge. It will hence take a longer time and benefits the larger, more advance economies. Due to this, more advanced countries will get to move around earlier (will lead to faster economic recovery) vs poorer and less developed economies.
3. Political Stability
US Presidential election just ended with Joe Biden set to be next President. There will be some changes to policies but it seems at the moment that US "fight against China" will continue. It is expected that any maneuvers be more predictable and not as chaotic as before (i.e. officials being sacked via Tweets).
Malaysian Politics will continue to see a lot of changes, volatility and a big potential of GE15. Sarawak election might coincide with GE15 but all depends on the COVID19 cases and vaccination programme. Until a stable political alliances is found between PKR, DAP, PAS, UMNO, Bersatu, GPS etc and proven that the coalition can work, it'll continue to be chaotic and unstable. The results coming from GE15 will lay a foundation on whether the cooperation might continue or not.
Worldwide wise, it'll continue to see some volatility and changes in political arena. However, with the big brother US and China now seems to have a more stable political footing, it can be seen that policies making and agreements can be expedited or discussed extensively, which is good for world economy.
4. Defaults/Shocks
There is an inherent risks of continued defaults especially in the SME arena. Also, in industries like Travel, Tourism, Restaurants and Hotels, Airlines which are hit the worst. The trend might continue and the increased in debt (due to debt payment deferment) will continue to 'haunt' the industry as they will have more debts to service going forward.
Remember that any form of loan moratorium is just to defer your payments but the outstanding amount will increase. This although will bring hard hit companies through the 'winter' but they will spend a bigger amount of profit paying back debt later on.
5. Tourism
Tourism sectors including airlines and restaurants will continue to suffer at least for 1H 2021. Local tourism will resume first, estimated to be from May-June 2021 for more advance countries and year-end for poorer countries due to the slowness in the reach of the vaccines.
International Travel is expected to restart in Q4 2021 but destination will be the more developed countries where the majority of the population has gone through vaccination. Countries who still have not vaccinate at least 80% of their population might face difficulties in attracting quality tourists and will have to rely on neighbouring countries or domestic tourists.
