The Road Ahead in 2021: Profitable Bonanza or Heightened Risk?

 

Investors have been spoilt since Covid.

As countries went into lockdown, governments cranked up the pizza party of the money-printing machine. Many had seen that before in 2008. But this time, it was bigger and hungrier.

Here in New Zealand, the Reserve Bank drastically expanded its QE (Quantitative Easing) programme last year. It will buy $100 billion of bonds on the secondary market from newly created money by June 2022.

This is almost half the country’s GDP! In newly created money to flood capital markets and keep interest rates low.

Of course, other countries have followed such programmes. Though not to this extent. The Reserve Bank of Australia is running a similar program of around A$100 billion in an economy seven times larger.

It is little wonder that NZX stocks and property prices are now at super-amped levels.

Speak to anybody with money in the bank and they want to get it out of the bank. Away from measly deposit rates of 0.5% or less.

But when interest rates are very low and there’s a flood of cheap money looking for a home in a small pool, the market can soon get ahead of itself.

Some New Zealand equities and property are now looking severely overvalued.

That’s why we focus on global investing. Where there are more opportunities. And deeper pools.

But if there’s one thing I’ve learnt over the years, it is this: Beware of getting caught up in wider analysis of economic trends. Economies are diverse, somewhat unpredictable and often rudderless. You can easily fool yourself.

Instead, look at individual, specific businesses. Ask yourself if a certain book value is being underpriced. Or whether investors are paying far too much for earnings and you should beware.

We are currently researching new, specific opportunities for our portfolio which we’ll be identifying soon. Right now, here are the opportunities we see for 2021…

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Simon is the Chief Executive Officer and Publisher at Wealth Morning. He has been investing in the markets since he was 17. He recently spent a couple of years working in the hedge-fund industry in Europe. Before this, he owned an award-winning professional-services business and online-learning company in Auckland for 20 years. He has completed the Certificate in Discretionary Investment Management from the Personal Finance Society (UK), has written a bestselling book, and manages global share portfolios. Simon is a shareholder of Wealth Morning.


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