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New trends investors cannot ignore

Fundamental changes in how we live our lives are driving economic recovery in novel ways.
Expect ‘revenge socialising’ – and accept that China is important; it accounts for around 20% of world economic output. Image: Qilai Shen, Bloomberg

With experts seemingly in agreement that the world is beating Covid-19 – or at least that we are closer to the end of the pandemic than its beginning – the world has changed remarkably.

“Everything is different. Just think how the way we use technology has changed. Within weeks, we changed the way we work, the way we live and the way we shop,” says David Shapiro, chief global equity strategist at Sasfin Wealth.

In addition, economies and financial markets have recovered surprisingly quickly from what seemed like a huge disaster only a year ago. The International Monetary Fund (IMF) increased its growth forecast for the world economy to 6% this year and most stock markets have reached new highs, sometimes leaving investors confused.

In a recent talk, Shapiro explained at there are several novel new trends that investors need to recognise to make sense of it all.

Like a lot of commentators, economists and investment analysts, Shapiro remarked on low interest rates and low inflation, as well as the rollout of Covid-19 vaccines.

Economic growth, low interest rates

“The no-expenses-spared reaction of central banks around the word to the Covid-19 pandemic has reduced interest rates to basically zero. Central banks in the developed world remain accommodative which means that interest rates are still close to zero and in some countries in negative territory,” says Shapiro.

Massive stimulus packages in the form of the American Rescue Plan ($1.9 trillion) and the Infrastructure Plan ($2 trillion) will not only support the US economy but also the economies of many of its trade partners. Concerns about rising inflation in the United States on the back of the economic recovery and stimulus packages saw interest rates in US treasuries increasing lately, but Shapiro says at 1.6% this is still low and conductive for economic growth.

Thus, the IMF now expects the global economy to achieve growth of 6% in 2021 after the 3.3% decline 2020, with China growing much faster.

However, Shapiro warns that growth will be incomplete and unequal as some countries will roll out vaccines faster than others.

Importance of China

While the US economy is not expected to reach the output levels of before the Covid-19 pandemic, the expected growth of 6.7% in the Chinese economy this year will represent full recovery.

“China is important. Around 20% of world economic growth, or 20% of total economic output, comes from China.

“The middle class in China is growing, forming 50% of the population. Their economy is becoming big tech and China spends more on research and development than the US. It’s becoming greener and more digital,” says Shapiro. He states that China has become the world leader in the development of renewable energy products and is way ahead in the manufacturing of batteries.

“China is not the low cost producer of basic goods any more. It’s becoming a disruptor in the technology space,” says Shapiro, adding that WeChat Pay has more than 900 million users around the world, more than any other digital payment platform.

“We might not always like their policies, but we cannot ignore them,” says Shapiro.

Renewable energy shines bright

With China leading the way in developing clean air solutions and actively promoting the adoption of electric vehicles in its cities, the shift to using renewable energy at home, at work and in transport will increase at a faster pace.

Battery manufacturers are working hard to reduce the size of batteries, increasing power and output, while soaring demand has raised interest in metals like nickel, cobalt and lithium. Shapiro notes that batteries that power electric cars need large quantities of specialised commodities, including 20kg of nickel, 20kg of cobalt and 60kg of lithium compounds.

Demand for commodities

Stronger economic growth is boosting the demand for commodities with prices increasing sharply. The prices of copper, platinum group metals, cobalt and nickel all increased as demand spiked while supply remained constraint by Covid-19 closures of operations and disruptions in supply chains.

China features, once again, as a huge user of commodities as well as gaining control of certain commodities that are important in digital and green energy applications. It is common knowledge that China has the largest reserves of rare earth metals, and hoards the production for its own use.

In addition, says Shapiro, China is investing in mineral producers around the world to secure supplies of desirable commodities like cobalt and nickel that is used in the manufacturing of modern batteries.

The new focus on investment in infrastructure worldwide will also boost the demand for commodities.

Massive infrastructure projects are mooted as part of stimulus programmes in the US and elsewhere, even in SA.

There’s so much that needs to be built, whether it’s digital infrastructure, housing or manufacturing facilities, and this will underpin the demand for commodities, says Shapiro.

Revenge socialising

Sasfin’s strategists are predicting a huge upswing in socialising, travel and shopping, going so far as to call it revenge.

“People have been isolated from their friends and family for more than a year and have had to stay away from public spaces, hospitality locations and entertainment destinations.

“The rollout of the Covid-19 vaccine means that everyone’s going to be able to let off steam as confidence grows,” says Shapiro.

“Travel, shopping, meeting with friends and socialising are going to be big themes in the next 12 months and beyond.” He adds that cruise ships have already reported an uptick in bookings.

Unfortunately, it will be unequal. “Borders will remain closed for travellers from SA for a long time.”

Shopping will look different – for shoppers and retailers

While many customers who turned to online shopping during the pandemic will return for an in-store experience, retailers are going to have to adapt to the changing environment, balancing the costs of brick-and-mortar stores with slick and effective online environments.

In essence, retailers will have to pay rent on physical stores, spend on developing online selling, and pay for delivery of goods.

Dynamic advertising and marketing tactics have changed how brands engage with customers and social media has brought producers and consumers closer together too, eliminating go-betweens (like wholesalers), according to Shapiro.

“This is already seen in the shift by brands like Nike and Adidas to sell directly to end users rather than via retailers. Companies will connect with customers directly,” he says.

“E-commerce sites will evolve even more, with chatbots and virtual assistants becoming more commonplace, while augmented reality will help online shoppers better understand what that clothing item, make-up or piece of furniture will look like in their environment,” he says.

Cashless transactions have grown in leaps and bounds, rapidly becoming more sophisticated as people have sought ways to avoid touching public surfaces and paying for products and services remotely.

Rise of 5G

Shapiro says the Covid-19 pandemic has changed and accelerated the way in which people use technology. “Within weeks, the way we work, shop and learn changed.

“So much more will be made possible as 5G rolls out with this transformative tech bringing even more new opportunities for ventures, from remote surgery to driverless vehicles,” he says. “It is going to change our lives for ever.”

Unfortunately, Shapiro concludes that the new trends will probably widen the gap between rich and poor.

“Nothing is possible without the successful rollout of Covid-19 vaccines, which is vital to lift business and consumer confidence. With some countries lagging, the inequality gap is likely to widen.

“Countries with slow or ineffective vaccine strategies will remain blacklisted for travel by those who have had more effective programmes,” he warns.

“The world will never be the same again. This could be for positive reasons – like the pace at which we have adopted technology – or it could be for harmful ones, like the widening inequality gap between population groups and countries.”

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