2021: Another challenging year for asset markets and investments

As 2020 comes to a close, money and capital markets remain mired in uncertainties that have bitten into portfolio returns. Notably, the COVID-19 crisis has not only crippled economies but also sparked volatility in financial asset markets worldwide.

In March, stocks, bonds, gold, and alternative assets like Bitcoin – all went into a tailspin as investors opted to hold cash at the height of the pandemic. However, asset prices surged steadily upward once more amid signs of an accommodating monetary stance adopted by central banks worldwide, especially the Federal Reserve (Fed), and the gradual easing of lockdown measures at mid-year.

Gold prices in the global market bounced back to a historic high, beyond USD 2,050 per ounce. Yet, the gold market has nosedived once more as the year-end approaches amid positive news on the development of COVID-19 vaccines – a negative factor for gold, considered a safe-haven asset. On the other hand, the aforementioned vaccine progress and the victory of Joe Biden in the US presidential election prompted stock markets and other risk assets to rise relentlessly. At the same time, deposit rates of commercial banks have declined steadily in line with the policy rate – now at a record low of 0.50 percent.

Looking ahead into 2021, asset markets and overall investment will remain plagued by numerous downside risks, whether they be a potential reemergence of COVID-19 or the timing of widespread distribution of a vaccine. The global economic recovery, especially the state of the US economy which will consequently have an implication on the implementation of the Fed’s monetary policy along with the new US president and his policies, as well as domestic issues, i.e., interest rate trend and the political situation. All of these factors merit close watch, as they are set to affect financial asset markets in the coming year.    

In the first half of 2021, the continuation of the easing monetary policy adopted by the Fed and other major central banks is likely to remain. Movement in money and capital markets will thus hinge mainly on two variables, i.e., any surge of the COVID-19 pandemic at year-end 2020, which could linger into 2021, and US political issues which still is unresolved.

Most importantly, enactment of relief measures to alleviate the impact of the COVID-19 crisis requires approval from both the House and Senate. Under these circumstances, risk asset markets cannot completely rule out negative outcomes. Nonetheless, policy changes under the leadership of the new US president may ease pressure on Asian markets, which may receive a windfall from portfolio diversification by foreign investors. However, the progress of COVID-19 vaccine development and distribution, if being perceived as positive, will promote risk-on sentiment which will be a boon to risk assets but will limit an upside gain of the global gold price. 

Regarding domestic trends, Thai economic recovery remains fragile. Much will depend on various factors, especially any potential reemergence of COVID-19 either at home or abroad, and the domestic political situation. The Thai policy rate is therefore expected to stay low or drop even further in 2021. As a result, deposit yields may be kept at low levels. However, e-savings products or special fixed-term deposits to be launched by commercial banks to replace some of the matured deposits will appeal to savers with moderate risk appetite, as they offer relatively higher interest rates than their savings and general fixed-term deposit counterparts.

Government savings bonds are suitable for risk-averse savers who seek to gain higher returns than from government bonds and deposit rates in general. Aside from diversification to low-risk saving vehicles, more risk-savy investors may wait for the right time to invest in the stock market or equity funds before they are poised to rebound once COVID-19 dissipates.

For novice investors, diversification and risk-return trade-off may not be the entire answer when it comes to investment in this modern financial era, where multiple alternative assets are available. Let’s take cryptocurrencies as an example. Aside from digital literacy – wherein investors must gain a thorough understanding of this digital currency’s features – they must also take into account other issues such as supervision and regulatory requirements. This means that the degree of acceptance by investors as well as market supervision by regulators still varies from asset to asset. What’s more, this platform’s credibility and liquidity remain causes for concern. All in all, your own financial resources and level of risk tolerance are of paramount importance.