We look at some of the key investment trends that traders may want to keep an eye on in the New Year.
The Death of Value
For some, 2020 may come to be known as the year where traditional valuation models died. Despite the coronavirus pandemic thrashing corporate earnings, stocks continued to see their share prices trade higher and their valuations expand rapidly in 2020.
Much of this was driven by record low interest rates, as investors were driven into riskier and riskier assets.
Yet with the US Fed expected to keep interest rates suppressed in 2021 – one is left wondering just how sustainable these ‘new normal’ valuations are. Will the market continue to disregard valuations, as it has historically done during periods of irrational exuberance; or will reality finally bite and another sell-off ensue?
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· Goldman Sachs +27%
· Discover Financial Services +44%
· Charles Schwab Corporation +35%
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ESG (Environmental, Social, and Corporate Governance) investing
ESG investments boomed in 2020; while traders and stock pickers piled into electric automaker Tesla at an unprecedented rate.
Tesla, which has long been a poster child for a decarbonised future – saw its levels of media attention as well as its share price skyrocket in 2020. The stock is up over 800% in the last 12-months.
More broadly, investors continue to funnel capital into ethically focused investments. In 2020, inflows into ESG-focused exchange traded funds surged 223% – hitting US$189 billion in assets under management, according to Trackinginsight.
Ultimately, while it’s likely that ESG funds will continue to attract new capital in 2021, Tesla’s fate appears far less certain, even as droves of speculators continue to bet on its success.
Crypto: Bubble or Paradigm shift?
Following their spectacular run in 2017, cryptocurrencies returned to the fore of the investment world during the back-half of 2020, with Bitcoin surging above the $40,000 mark for the first time this January.
Whether investors are just looking to speculate, hedge against the unknown or something else entirely remains hard to determine. Looking ahead, whether the crypto market continues to rise or fall, investors should keep an eye out for the performance of these digital currencies in 2021.