Global stocks will continue to rally this year despite the price surge, spurred by the prospect of global economic recovery, certainty about the US presidential election result, and effective Covid-19 vaccines, while gold is recommended as a hedge against future inflation, says an analyst at Tisco Economic Analysis and Strategy Center (Tisco ESU).
Komsorn Prakobphol, head of the economic strategy unit at Tisco ESU, said although global stocks are now traded at a very high price range compared with the past, the think tank still sees 2021 global stock markets as continuing on an uptrend supported by five factors.
First is the global economic recovery, with the IMF projecting global GDP to increase by 5.2% in 2021, recovering from a contraction of 4.4% last year on the heels of success developing a Covid-19 vaccine.
Second is Joe Biden's victory in the US presidential election, officially announced in the middle of December, which cleared up any uncertainty clouding the global economic direction, he said.
Third is the development of Covid-19 vaccines that should be distributed worldwide in 2021. Mass immunisation in many countries starting in the second quarter of 2021 should allow all economic activities to resume in the second half of 2021, said Tisco ESU.
Fourth is the extended relaxation of monetary policy. The Federal Reserve has adjusted its monetary policy and adopted an average inflation target, which allows the Fed to maintain a looser monetary policy.
Fifth is the prospect of a quick rebound for listed companies' profits. Following the recovery, global analysts forecast the S&P 500 index will rise 22% this year and continue to grow by 15% in 2022, while Thai listed firms' earnings are projected to grow by 46% this year and 14% in 2022, said Tisco ESU.
The think tank foresees cyclical stocks such as industrial products, luxury goods and material goods as benefiting from these five factors. Prices of stocks in these groups are also cheaper compared with the overall market.
However, easing monetary policy and fiscal policies will take longer to mitigate the impact of the pandemic and increase government welfare. This may cause inflation to rise in the future. To reduce the risk from inflation, investors should diversify their portfolio into gold to hedge against appreciation in the long term, said Mr Komsorn.
