The global investment bank Morgan Stanley has revealed some of the investment trends that it's watching and that you should know about.
Morgan Stanley, with Australian CEO James Gorman at the helm, is one of the largest investment banks in the world, with a wealth of information and analytics to look at around the world.
It recently unveiled some thoughts about investment trends in 2021 and its thoughts about them. This article will highlight some of them.
Investment trend 1: Soggy markets and a surging economy
Morgan Stanley is not convinced that this is going to be another strong year for financial markets, even though plenty of investors are expecting a good year for shares.
The investment bank believes that whilst the economy will keep recovering – which could be seen in economic statistics like GDP – it could be less successful for financial markets.
Whilst high levels of government financial support is helping households and businesses ride through the COVID-19 pandemic and the effects, it could lead to inflation and increasing bond yields. We're seeing some of those worries seemingly play out in global share markets over the last week or two.
Another factor could be that the large increase in household savings (which went into buy assets, like shares) is unlikely to keep going. Household savings could reduce further as spending returns to more normal levels.
Morgan Stanley's final point about this was that the pandemic was/is viewed as a natural disaster that will fade at some point, and that the end has been priced into valuations.
Investment trend 2: Inflation rates to rise?
The investment bank said that governments and central banks were confident that the financial action, such as quantitative easing and taking on a lot of debt, wouldn't lead to strong consumer price inflation. After all, inflation hasn't done much over the last few decades.
But Morgan Stanley pointed out four areas that could lead to inflation returning:
Depopulation: Growth in the global working-age population is falling, and a declining labor supply tends to increase wages.
Deglobalization: Slumping global trade growth since the 2008 financial crisis continues to reduce competition.
Declining productivity: The global decline, driven in part by governments bailing out unproductive companies, raises businesses' cost and pushes up consumer prices.
Debt: Rising government debt, including trillions to pay for pandemic stimulus packages, could be the jolt that reawakens inflation.
Investment trend 3: A resources recovery
Morgan Stanley suggested that the world may be about to enter a period of stronger resource prices, even though there has been a steady drop of commodity prices over the last century and a half. We could be entering a "boom decade".
Historically, commodity prices tend to rise when the US dollar weakens, and the US dollar has been weakening in recent months.
The investment bank also pointed out that whilst the prices of many different types of assets have risen over the last year, commodities haven't, so it could be their turn as they look "hugely attractive".
Whilst demand looks like it could be strong in the coming period as the global economy recovers, there isn't that much potential supply because of a low level of investment over the last decade.
Many ASX shares are benefiting from stronger commodity prices at the moment including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Ltd (ASX: FMG), Mineral Resources Limited (ASX: MIN), Galaxy Resources Limited (ASX: GXY) and Lynas Rare Earths Ltd (ASX: LYC).
