Looking towards a New Economic Cycle in 2021
2020 has been the year of unprecedented times, with the pandemic exposing us to significant health risks, and causing social, economic and structural disruptions, adding a layer of volatility to markets. We explore how past
market events lead to long-term investable themes such as healthcare, Asia and technology.
Pandemic Insights
Across the globe, as of 12 November 2020, COVID-19 cases have exceeded 52 million. The rise of a major second wave of COVID-19 in the second half of 2020 in the United States and Europe was widely anticipated. It came
after a summer reprieve, where individusals resumed much of their normal activity.
The US currently leads the globe in the number of COVID-19 cases as of 12 November 2020.
East vs West
On contrary to the West, COVID-19 infection rates have remained dramatically lower in much of Asia. A centralized, disciplined and enforced government response in large parts of North and East Asia remain in place and
effective.
In 2020, as compared to China, the US has spent more in
order to achieve economic stability thus far.
A broadening recovery in China provides a reference for what to expect in global services spending in the West post-pandemic. The release of a COVID-19 vaccine will also be key in achieving economic recovery in 2021.
Source: Citi Private Bank
China: Transformation into a Consumption-Driven Society
While China may currently be facing structural hurdles in global trade, China has been shifting from an export-oriented economy to a domestic-consumption
driven one. The Rise of Asia continues unabated and there will likely be a steady shift in global economic power from West to East despite inherent tensions.
driven one. The Rise of Asia continues unabated and there will likely be a steady shift in global economic power from West to East despite inherent tensions.
Since 2015, the population of middle class in China is greater than the total US population.
In 2018, the percentage of domestic consumption contributed to over 70% to China’s GDP growth.
Source: Citi Private Bank
Where do long-term investment opportunities lie?
With the ongoing pandemic and trade tensions in 2020, below are some long-term opportunities for investors.
Diversification in global portfolios is important, as there are also opportunities in COVID-19 cyclical sectors that have oversold and could recover in
the recovery phase. Overconcentration in a single sector is cautioned against.
Diversification in global portfolios is important, as there are also opportunities in COVID-19 cyclical sectors that have oversold and could recover in
the recovery phase. Overconcentration in a single sector is cautioned against.
Healthcare
The COVID-19 economic shutdown has highlighted certain special opportunities in healthcare and digital infrastructure. These areas have shown resilience, but also require additional capital investment over the
coming years. Increasing human longevity will also impact demand patterns in healthcare, accentuated by the pandemic.
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The Rise of Asia
Within Asia, broader recovery is becoming more likely as vaccines make progress. Despite political risks, the policy remains generally supportive.
Growth in Asian GDP is much lower than a decade ago, as China is slowing down and global trade faces structural hurdles. But at the same time, China’s slowdown from 2010 to 2019 has entered a more stable stage.
Asian growth has broadly become more domestic demand focused and less sensitive to exports.
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Digital Disruption
The economy has been surprisingly resilient where there has been digital substitution and innovation.
Digitisation has allowed society to be more resilient and adaptive. Advances in medical research are more likely to deliver effective treatments and/or a vaccine much faster.
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obtained from sources believed to be reliable, Citigroup and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.