The world economy and the global financial market has been on a rollercoaster since the beginning of the year.

We have witnessed a number of occasions this year, some of which include :

  • New peaks in Covid cases and deaths during q1.
  • The powerful effect of an effective vaccination drive which has helped to lower the curve in some nations such as the US, Uk, Israel which led to the relaxation of restrictions and reopening of various economies all around the world.
  • A demand surge in growth stocks in the beginning of the year, however this demand stalled quickly as there was also a rotation towards value stocks mainly because of fears of increase in bond yields.

For the second half of the year, we expect the following things to inform our decisions while we are constructing/readjusting our portfolios:

Inflation, fed’s bond buyback programme, stimulus packages, more re-opening, West-China relations and we must not forget to think and account for the unthinkable also.

Inflation:

The US inflation has been increasing for the past couple of months with inflation now at 4.2%, it’s highest since the 2008 financial crisis. The rise has been as a result of pent-up demand due to the covid-19 lockdowns and supply-chain bottlenecks which has made sourcing for raw materials harder and this has sent the PMI, CPI and PCE indexes soaring.

However, The Fed expects this inflation to be transitory and for it to ease as we transition into a covid free world. 

Although, This might not be the case and Inflation might stay with us longer than expected, which is why we advise everyone should have inflation-linked stocks in your portfolio. Click this https://temmoyeinvestments.com/2021/06/03/impact-of-covid-19-on-industries-and-outlook-on-a-post-covid-inflationary-environment/ to find out sectors that are inflation-resistant.

Fed’s bond buying Programme:

The fed currently buys back bonds worth $120b monthly, but we expect tapering to begin in the second half of the year. Tapering simply means

reducing the amount spent on buying bonds. We expect tapering to have a significant effect on companies which have yet to fully find their feet in the market. This could lead to more mergers and acquisitions as companies with unsteady cashflow would be looking to stay afloat.

We advise investing in more companies with positive cashflows in the second half of this year.

Stimulus Packages :

President Joe Biden signed a $1.9 trillion corona virus relief package earlier this year which helped kick-start the economy’s recovery, The Us Presidency is also pushing for an infrastructure bill that would help revamp its infrastructures and transition its economy to run on clean energy.

We expect President Joe Biden’s infrastructure bill to be passed in the second half of the year and this would likely add more money to the market. We expect your portfolio to also have stocks in this sector that is being given incentives, The sectors that the infrastructure bill would cover jncludr: climate change, transportation (construction of roads, bridges, rail lines, ports, electric vehicle charging stations ), 5G telecommunications , Power sector and inprovements to the electric grid so we wouldn’t have a reoccurence of what happened in texas. It would be interesting to see if the republicans would support this bill, if there would be a common ground or if the democrats would move on with the bill without the republican’s help.

However, An intelligent investor would ne invested in one of these sectors in order to grow its portfolio in sync with the advancement of infrastructures.

More reopening:

The world economy has been on a sluggish growth since 2020 as the Covid-19 virus led to lockdowns and closure of economies all around the world.

As Covid dies down and vaccination programs improves, we expect more economies to keep opening up their economies and borders which would revive the activities we all enjoyed pre-covid. The hospitality sector, Airline sector, cruise sector and many more are expected to receive an influx of demand in their products/services diring this time which would have a positive impact on their revenues, balance sheet and profits.

We advise to invest a part of your portfolio in companies that would benefit immensely from re-opening, some of the sectors they operate include hospitality.

West-china relations :

The west and china’s relation has worsened during the past couple of weeks. The west( which includes the US, Uk, Australia, Canada and the Eu) has laid various allegations on china which includes :

  • Human right abuses and genocide by the chinese government in xinjiang ( A province in china), Origins of the covid-19 virus
  • Trade manipulations
  • Infringement on hongkong’s democracy and democracy
  • Bullying and intimidating other Asian countries and
  • Trying to claim the south-china sea for itself.

These has led to various western countries barring Chinese companies from operating in their sphere and labelling them as a threat to national security. We expect these accusations to lead to more sanctions on Chinese products and further boycotting of china by western companies. These is expected to significantly affect chinese companies as it would make imports more expensive and exports undesirable. There have also been news of the g7 planning an infrastructure called Build back better for the world (B3W) that would counter the chinese belt and drive . Thees shows how much of a threat the west sees china.

We recommend that portfolio managers should be very critical in investing in Chinese stocks listed on western stock exchanges as they run a risk of being delisted as the tensions continues.

Note :

Even with this into perspective, we still need to analyze company specific information to pick stocks which would be worthy to be in our portfolio. We must also not forget the fact that the covid19 virus is still here with us and until we vaccinate a majority of the world’s population, We will always be at risk of another outbreak.

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Temitayo

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