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2021 investment predictions (Grey Swans) - YouTube
Channel: Martin Bamford
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political upheaval in the uk more covert
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deaths than in 2020
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and an escalating tension on the korean
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peninsula
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just some of the events that could
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happen in 2021
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and have an impact on investment markets
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i've received a briefing note today from
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legal and generals investment
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management's
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asset allocation team with a list of
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some grey
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swans to consider for next year what is
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a grey swan
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well this builds on the same talibs
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notion of a black swan
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which is an extremely unpredictable
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event where what happens is beyond the
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normal expectations of a situation
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and has potentially severe consequences
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grace wants then
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should be conceivably possible if not
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necessarily probable
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a grace one is usually a geopolitical or
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macro financial event
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but more to the left field of what
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normally happens
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and it's an interesting list from lgim
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lots of food for thoughts
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as we rapidly approach the end of this
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year and start thinking ahead so what
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might be different in 2021.
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hi everyone i'm martin bamford a
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chartered financial planner at
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informs choice on this channel i talk
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about personal finance investing
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and happiness i make these videos to
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help you become wealthier and happier
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if that sounds like a great result click
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on that little red subscribe button
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to become part of our subscriber
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community it's completely free
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and you'll never miss an episode grace
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wands for 2021 then i should start with
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a couple of important disclaimers
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firstly these grey swans represent
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solely the investment views
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of lgim's asset allocation team don't go
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doing anything silly as a result of
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watching this video
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as always it's for informational
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purposes only this
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is not advice secondly prediction should
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always be taken with a pinch of salt
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nobody has got a crystal ball when it
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comes to the investment markets
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trying to time the markets is a mugs
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game
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if your investment strategy relies on
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luck do not
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expect it to go particularly well the
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best investors
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think about the long term not what
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happens to the markets on a daily weekly
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monthly or even yearly basis but what
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happens over the course of decades
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well it's great to think about what
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might happen in the short term and one
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year as a time horizon is most
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definitely a short term
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these sorts of predictions which mice or
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might not materialize
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should never form the basis of your
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investment strategy
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with those important disclaimers out of
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the way let's take a look together
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at what lgim's asset allocation team
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came up with
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in this briefing now they start by
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talking about their predictions
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from last year and i love their candid
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approach towards this because
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like all of the people who made
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predictions at the end of 2019
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some came true and some were way off
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perhaps this year
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more than ever before thank you covered
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19 pandemic
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this time last year lgim identified top
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risks for 2020
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as argentina's default the democrats win
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in the u.s presidential election
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and hong kong losing its special status
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with the us
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so not bad so far and they do note that
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with the exception of the political
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turmoil in hong kong
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the impact of financial assets has
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actually been quite limited from these
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they also gave credence to the idea that
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the uk would leave the eu
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with either no trade deal or a very
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basic trade deal
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and as i recall this on tuesday evening
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yep that looks
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pretty spot on as well we're still
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haggling over reductions in fishing
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rights among some other
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quite important factors there is a bit
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more progress being made but it is slow
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and the clock is ticking on the plus
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side though
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uk and eu negotiators have agreed to
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continue talking
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past the first of january transition
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deadline
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also high on lgm's list for 2020 was the
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possibility
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of so-called helicopter money as an
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extreme
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fiscal stimulus measure now we've not
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seen
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actual helicopter money in the uk at
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least not yet
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but many of the government's financial
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support measures look a lot like
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helicopter money so
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furlough schemes for example anyone
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taking advantage of those
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what about the pandemic then the big one
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for 20 20.
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lgim had this on their long list because
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pandemics were often flagged in tail
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risk prediction exercises
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they also spotted the risk to markets
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from the pandemic quite early in the
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year
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taking out risk management positions in
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january and then into february to
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protect against possible impacts
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of this virus as it started to spread
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beyond china
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but they admit to having underestimated
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the depth of the impact it would have on
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society
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and on the markets by the end of march
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as many investors did and they say with
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the benefit of hindsight
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their actions were too little and too
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early
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the note says the events of the first
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quarter challenged our previous
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philosophy
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that constant and expensive tail risk
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hedging
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is not a viable solution for portfolios
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that view has now become more nuanced
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while we believe that tail risk
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management should still be targeted to
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the real
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or outsized risks faced by any portfolio
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or client
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we have evolved our commitments to
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research in such strategies
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with a lower cost of carry or
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performance drag
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we believe that some collection of these
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positions can become more structural in
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nature
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even if the components or underlying
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trades are more dynamically
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managed another admission in this
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briefing is that they remained cautious
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on the market's economy
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and virus for too long over the summer
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an opportunity missed
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in what turned out to be a very strong
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second half of the year
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so that's the past what about the future
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ljm
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turned their attention to this new
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strain of kobit 19 which is already
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running rampant in london
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and the south east of england it's
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prompting more restrictive measures
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and they say the virus is likely to
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dominate their headlines for many
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months to come but they are optimistic
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about the rollout of vaccines allowing
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for a broad reopening of the economy
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reasonably soon too they see some
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terrorists to that optimism despite it
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being a sensible base case it's not
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inconceivable that the total number of
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deaths attributed to kobit 19 will
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actually be higher in 2021
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than it was for 2020. and those deaths
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could come predominantly from emerging
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markets
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where the vaccine rollout is likely to
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be slower
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they also don't rule out a third
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national lockdown in the uk especially
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if vaccine distribution
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cannot meet its rather optimistic
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targets i think we are pretty much on
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track for a third national lockdown
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we've effectively got one already
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haven't we in the large parts of london
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and the south east as well as the whole
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of wales
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and there are lots of indications coming
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through right now that secondary schools
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will not be returning at the start of
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january with this
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early mass testing plan for pupils now
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looking
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impossible quite frankly to deliver in
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terms of uk politics this looks set
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for more potential upheaval according to
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betting markets there is a 35
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chance that boris will not be prime
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minister still
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in the next year and there's also a
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reasonable prospect of another scottish
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independence referendum
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also in the political spectrum our
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relationship with the eu will draw
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headlines
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lgim think that uk assets remain
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sensitive to these developments but they
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see more upside potential
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than downside risk and therefore take
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tactically positive views
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on the pound outside of the uk u.s
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china relations are still the main
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geopolitical dynamic
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that's likely to shape the next decade
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not just 2021
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they think this subject will come back
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into focus for investors
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once the pandemic has passed but the
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path to escalation
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or even physical confrontation between
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the us and china
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should not be ruled out another tail
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risk in the asia pacific region is the
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possibility of escalating tension
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on the korean peninsula but
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reunification talks are also a
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possibility
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some seriously interesting thoughts here
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from lgim they finish by sharing 10 more
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grey swans to consider for 2021
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starting with the hong kong dollar
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breaking its peg
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against the us dollar that was first
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established in 1983.
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we heard earlier in the year that donald
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trump's top advisers were considering
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proposals to strike against the hong
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kong dollar peg
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but analysts concluded that the us was
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essentially almost toothless
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in hurting the peg banning hong kong
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from buying us dollars would be a
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nuclear option
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doing significant damage to global
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financial markets including
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those in the us if it happened it would
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be a huge
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move but it's a bit like the us pressing
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the self-destruct button
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and a transition from the trump to the
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biden administration
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could cool tensions with china next year
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we'll have to wait and see on that one
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number two is that central bank
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sponsored crypto currency goes
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mainstream
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cratering bitcoin yes i can absolutely
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see that happening
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and i know that bitcoin fanboys are
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going to hate me for saying it
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we know that central banks have their
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own cryptocurrencies in development
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assuming they meet the right standard of
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security they could blow the likes of
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bitcoin out of the water
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let me know in the comments below what
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you think of this particular one
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grace one number three is that various
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new medicines or vaccines
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are developed for existing illnesses as
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a result of covid19 research
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these could include a possible cure for
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the common cold
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and significant improvements in the
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fight against cancer
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and that would be a fantastic and a
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surprising outcome from this pandemic
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wouldn't it
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what if the consequence of covid is that
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we actually improve our life expectancy
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wouldn't that make the economic and
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social damage all worth it at the end of
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the day
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i like this grey swan because the way
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the pfizer bioentec vaccine and a few
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others
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have been developed this year using
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messenger rna technology is just
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incredible and the speed at which it's
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been developed too
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is is really really incredible let's
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keep in mind that any delay in rolling
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out the vaccine was down to safety
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testing
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and regulatory approval it was not about
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the creation of the vaccine itself that
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was done many
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many months ago we've got 2021
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as the warmest year on record as the
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greatest one unfortunately that was not
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really a great swan as the last five
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years
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have been the warmest five on record
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i've been out for a walk by the river
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this afternoon wearing shorts
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it's mild it's late december climate
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change is here already
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and i think it's here to stay sadly
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which leads us into grey swan
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number five extreme weather events lead
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to poor harvests
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shortages and food price inflation high
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food inflation
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feeds social unrest in various countries
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spooking markets and obsessing the
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consensus trade
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of long emerging market equities now
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look i can get on board with that one
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too
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and i think an interesting long-term
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investment theme to consider is
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sustainable food
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development grace one number six brazil
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or turkey default on their foreign bonds
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brazil's long-term foreign currency
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issuer default rating from fitch
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is currently at double b minus with a
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negative outlook
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according to fitch brazil has high and
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rising government indebtedness
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a rigid fiscal structure weak economic
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growth potential and a difficult
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political landscape
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that hampers timely progress on fiscal
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and economic returns and turkey is in
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pretty poor shape too
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back in august fitch racing's revised
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the outlook on turkey's long term issuer
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default ratings
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to negative from stable and affirmed
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them at
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double b minus again fitch commented at
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the time political pressures the limited
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independence of the central bank of the
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republic of turkey
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and a track record of being slow to
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respond to events
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increase the risk that policy is
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tightened insufficiently
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contributing to further external
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imbalances market instability
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and a more disorderly adjustment grace
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won number seven
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putin retires creating a buying
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opportunity for the russian ruble i
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don't have a whole lot to say about this
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one but i suspect the world would be a
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better place
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once putin is out of the picture
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number eight autonomous driving finally
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hits the big time
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with a broad introduction in a major
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city now i am fully on board with this
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one
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an interesting consequence of widespread
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adoption of autonomous vehicles
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is what it could do to house prices this
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is my opinion now not lgims
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i think it could flatten out house
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prices across the uk
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reducing prices in london and in other
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cities
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and increasing prices in more attractive
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parts of the country
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in the countryside by the coast if you
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can jump in your autonomous car in the
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morning and have it drive you to the
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office
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while you get a bit more bit more sleep
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or do some work
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why on earth would you pay a premium to
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live in the city
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and of course our living and working
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habits have changed beyond recognition
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this year throughout the pandemic too so
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that will also have a factor
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grace one number nine long lasting broad
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social unrest in the us
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in major cities causing a correction in
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the s p and the us bond yields to fall
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below
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zero u.s society still seems to carry an
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awful lot of tension
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after this summer and following the
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still disputed at least on
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some parts of trump supporters u.s
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presidential elections
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these people have got a lot of guns
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that's all i'll say about that one
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and then grace one number 10 the pope
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announces the catholic church
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will allow married and female priests
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into their clergy
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i've no idea what impact if any that
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would have on global financial markets
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if you know think you know let me know
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in the comments below
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but thank you very much to lgim's asset
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allocation team for that briefing
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i get a lot of these passed across my
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desk on a daily basis would you find it
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useful
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to hear about more of them along with my
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take on what they could mean
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i'm very happy to create more videos
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like this in the future just let me know
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would you like to receive a short email
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from me in your inbox every wednesday
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from the new year onwards
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head along to sendfox.com forward slash
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bamford
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to register for midweek money it's my
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until next time thank you for watching
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i'm martin bamford
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and remember when it comes to your money
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the more you know
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the faster it can grow
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