Markets

Does a stock market year get any wilder?

D.he stock market year 2020 is on the home straight. A handful of trading days left, and the pandemic year is history. It was marked by one of the sharpest slumps in the market in recent years: in March, prices lost more than 30 percent, only to make up for the losses in an equally rapid rally. By the way, investors in Germany had to deal with the Wirecard bankruptcy and one of the biggest balance sheet scandals in recent financial history. In the end it can be said: This year has certainly been nerve-racking. But will 2021 really be more relaxed?

Many people in Germany have big plans for the coming year when it comes to finances, according to a recent survey by J.P. Morgan Asset Management found out among 1,000 women and men. An astonishing result of this survey is: Around a third of the respondents are initially satisfied with their own current financial situation. Meanwhile, 31 percent also want to spend less money in the new year by reducing consumption or saving with cheaper comparative offers, for example on electricity or mobile communications.

The stock exchange will remain taboo for many in 2021

Many Germans also want to do something about their investments in the coming year. Here you can tell from the survey that we are in Germany: Despite the low interest rates due to the monetary and fiscal policy measures of the central banks, around one in five respondents still want to save money in their savings account, at 20 percent.

On the other hand, an investment in stocks and the like is still not so strongly in the running. Only 18 percent said they wanted to conclude a fund or securities savings plan that enables regular investments even with small contributions. Only 15 percent of those surveyed plan to invest money in the stock market in the new year. Those who, on the other hand, were already active on the stock exchange this year expect a stronger rise in 2021, especially from the Dax. The optimists are counting on the corona crisis to subside at an early stage and thus on corporate profits to pick up again.

Experts expect corporate profits to rise

For the portfolio management board member of Union Investment, Jens Wilhelm, 2021 will be a year of opportunities in the hope of expiring corona restrictions. Record series on the New York stock exchanges give a foretaste of what one might hope for from the Dax in Germany in 2021. Union Investment expert Wilhelm expects global corporate profits to increase by up to 30 percent year-on-year in 2021, while he gives stocks up to 10 percent room for improvement.

Quite a few experts are betting on American stocks in the 2021 stock market year, even if they are often classified as overvalued on the basis of the price-earnings ratio (P / E). “Taking into account the free cash flow, the picture looks friendlier, so that selection is the key to success here too,” says Knut Gezelius, portfolio manager at the Skagen fund boutique.

American small caps interesting

For the experts at Royce Investment Partners, small American stock corporations (“small caps”) will continue to be an interesting investment option in the coming year. Small company stocks have often been the biggest beneficiaries of recessions in the past. “We see no reason why this should be any different in the current market environment,” says Francis Gannon of Royce Investment. He refers to the positive development of the Russell 2000 small-cap index, which achieved the best development in its history in November with 18.4 percent.

“The positive development of small caps in the United States is not solely due to a technical reaction in the market, but also to figures from the companies themselves,” said Gannon, which is underpinned by the robust earnings of smaller companies in the third quarter. Looking ahead to the months ahead, Gannon and his colleagues expect the trend towards smaller company stocks to continue. “A weaker dollar in particular should ensure that the framework conditions for exports by smaller companies from the United States are even better than they already are,” said Gannon.

Breakthrough for sustainability?

The aforementioned survey by J.P. Morgan Asset Management brought up another topic: According to this, 14 percent are interested in sustainable investments and not only want to increase their money, but also do something good with it at the same time. This trend may sound “typically German” at first, but the topic is also playing an increasing role in the United States.

Of the around 7.2 trillion dollars that are now invested in ESG financial products that take environmental aspects (Environment), social components (Social) and the quality of corporate management (Governance) into account, 80 percent of these investments have so far been made up of 80 percent Europe. The growth is enormous: the volume in 2020 is more than twice as large as in 2019.

Dirk Steffen, Head of Personal-Financial.com Market Strategy at Deutsche Bank, expects the topic to become increasingly relevant in America too. “During the coronavirus crisis, ESG investments have proven to be less volatile with comparable performance. In addition, the fight against climate change, social inequality and discrimination should be conducted more resolutely under President Joe Biden, ”said Steffen.

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