Wealth Strategies

Edmond De Rothschild Charts "New Normal" Investment Future

Editorial Staff, 4 February 2021

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The world after COVID-19 will be more indebted but will have made big strides in adopting new technologies.

China will move towards becoming the world’s leading economy, interest rates will remain low and digital tech is a dominant investment theme, argues Europe’s Edmond de Rothschild.

After experiencing one of the worst crises since 1945, the global economy is expected to return to normal thanks to the swift development and distribution of vaccines, wrote Lars Kalbreier, global chief investment officer for private banking, in a note.

The world after COVID-19 will be more indebted but will have made big strides in adopting new technologies, his note said.

China moves into the lead
“China has weathered the COVID-19 crisis better than other countries and will grow faster than the rest of the world as its economy has already fully reopened. We are expecting the Chinese economy to grow by 9.8 per cent in 2021, thus rapidly closing the gap to the US, which is still the world’s largest economy.”

“Moreover, Chinese companies are increasingly challenging their US peers for innovation in advanced technological areas such as artificial intelligence, information technology, electric vehicles and semiconductors, for instance. We hence believe that China should not be considered as an emerging market anymore, but as an economic and geopolitical superpower capable of competing with the world’s most advanced economies. For global investors, an exposure to this important region is therefore warranted in diversified portfolios,” Kalbreier said.

Interest rates will stay lower for longer
“Governments of western countries have implemented strong stimulus measures in order to protect their economies against the sharp slowdown induced by the pandemic. These stimulus measures have sharply increased government debt, which will need to be refinanced over the medium to long term. Therefore, central banks are likely to keep interest rates at record low levels in order to allow governments to service this additional debt burden. Investors will need to find new sources of yields such as corporate credit and emerging market debt for instance,” he wrote.

Increasing adoption of digital technologies 
“The pandemic has accelerated the adoption of digital tools. Indeed, the lockdowns have led millions of people, who were less familiar with the digital world, to embrace these technologies,” he wrote.

“In France for instance, 70 per cent of the 60-plus-year-olds that use online shopping started doing so during the COVID-19 lockdown. The same goes for the use of telemedicine, which has experienced a growth of over 300 per cent in the US compared to the pre-COVID-19 period. Hundreds of millions of children and their parents have learned new skills such as mastering the use of online education and teleconferencing,” Kalbreier wrote.

“The structural trend to a more digital society is unlikely to recede even once COVID-19 will be confined to the history books. Unfortunately, a greater adoption of digital tools also means increasing numbers of data theft and cybercrime. There will hence be a greater need for digital protection, which should translate into major investments in cybersecurity,” he wrote.

Sustainability will be a key theme for 2021 and beyond
“Many governments have implemented strong stimulus programmes in order to reduce the impact on their economies, and most of those programmes have one common denominator: they all comprise investments in green technologies. Moreover, the US, which has been absent in climate change debates for the last four years, is staging a strong comeback. Indeed, the Biden administration has put the fight against climate change via substantial investments in sustainability at the forefront of its political agenda. We therefore expect increased global investments in sustainable technologies and a faster move towards greener economies for years to come.”

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