UBS advises that strategically, investors should pay less attention to market timing and more to the long-term picture.
US equity markets are likely to gain in the coming year. Also, some of 2020’s laggards will catch up in 2021. The next year 2021 will be a ‘year of renewal’, and investors will need to think global, look for catch-up potential, and seek long-term winners, global investment bank UBS said in a recent report. The world economy and corporate earnings will return to pre-pandemic levels in 2021, according to UBS forecasts.
Should you invest immediately or wait for stocks to get cheaper?
UBS advises that strategically, investors should pay less attention to market timing and more to the long-term picture. In times of uncertainty, investors should take advantage of volatility to enter markets. The investment bank in its report explains that assuming 6 per cent annual earnings growth, earnings can be expected to be 5.7x higher over a 30-year horizon; market valuations may change over time, but rarely change by a factor of more than 5x. “Given the choice between investing immediately or waiting for stocks to get cheaper, putting money to work for the long term is usually the best choice,” said UBS.
Invest in ‘The Next Big Thing’
If the last decade was about investing in the technology sector itself, the investment bank UBS thinks the next decade will reward investing in the disruptors in sectors undergoing a technological transformation. “We expect ‘The Next Big Thing’ to materialize within the fintech, healthtech, or greentech spaces, or to be enabled and accelerated by the global rollout of 5G technology,” it said.
a) 5G technology: Following Apple’s first 5G phone, the iPhone 12 in 2020, UBS expects a wave of interest in 5G technology and its potential applications, a trend likely to persist for at least the next decade. The companies that manufacture, install, and maintain the equipment involved will see an expected 20x rise in annual 5G capex spending from 2019 (USD 7.5bn) to 2025 (USD 150bn).
b) Fintech: COVID-19 pandemic has triggered a dramatic shift towards contactless and mobile payments, and e-commerce. Improvements in customer acquisition are allowing fintech firms to cross-sell across different products and services. UBS expects fintech firms to enjoy earnings growth rates in the mid-to-high teens over the next decade, making the industry one of the fastest-growing globally.
c) Healthtech: As pandemic has increased patient focus on health outcomes and reduced people’s ability to access care and governments’ capacity to pay for that care, UBS expects health technology to play a critical role in improving the efficiency and quality of healthcare in the decade ahead. The use of telemedicine has increased rapidly since the onset of the pandemic. Technologies could also enable enhanced diagnostics, boosting efficiency and improving patient outcomes.
d) Greentech: The year 2020 has been a watershed year for global climate policy. The European Union (EU) and Japan pledged to go carbon neutral by 2050 and China promised to do the same by 2060. UBS expects governments to start acting in 2021 to stimulate job growth and economic activity, aiding the recovery from the pandemic. The green transformation of some of the world’s biggest industries could be just beginning, UBS noted.
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