2020 was the year where no one could have predicted the turn of events as the global coronavirus pandemic eclipsed all other challenges and expectations for the year.
What didn’t change however was that, when it came to investing, there were some clear winners and losers. As we look to the future, with greater hope but also with greater caution from the scars of 2020, does 2021 hold more of the same for investors?
Here’s a roundup of some trends we can expect to see in this new year…
#1 Changes in equity returns
Private equity will continue to flourish as we work to surface from the COVID-19 crisis but investors can expect to see lower equity returns in most traditional industries with a move towards more sustainable capital structures based on affordability of liabilities as opposed to continuous growth. On the other hand, the events of last year have seen shares in pandemic-friendly businesses thrive. We’re particularly excited about the potential for technology investments to continue to accelerate – which is why we ourselves at SHUAA Capital have stated our intention to focus on the technology space. Other sectors such as logistics, food, pharma and insurance also look primed for further growth.
Unfortunately, the severe impact of the virus on the economy also showed the fleeting nature of capital and many companies saw their traditional sources of liquidity, including bank funding, dry up. In light of the tough macroeconomic climate, we anticipate seeing alternative lenders and capital structures stepping in to fill the gap where banks and equity markets have retreated.
#2 Market share shopping
The plummet in revenues and depleted cash flows could push consolidation across certain sectors. There will be firms unable to curtail the still-lingering financial fall-out from the outbreak, so we expect to see successful businesses go on a shopping spree to gain market share through buying their competition on the cheap. As the full fall-out from 2020 starts to become evident, likely from Q2 2021 as government support and relief packages lighten, we may see more interesting investment opportunities arising to acquire companies that haven’t been able to adapt or pivot their business and will not be able to continue to operate.
A global report by Kearney’s Global Business Policy Council published in December 2020 also echoed that the economic disruption caused by the pandemic and the weakened finances for businesses across the world will result in industry disruption and consolidation, with private equity, big tech and the energy industry poised for the biggest shakeouts over the next five years. And we should expect to see this trend emerging here in the Middle East too.
#3 London’s green appeal
Through the lens of 2020, a new focus on where we work and where we live will drive the real estate market, especially in global cities like London, New York, Dubai and Hong Kong. In London, we saw a big ‘move to the countryside’ trend in 2020 as more people worked from home, giving rise to the desire for more room and green space. But while some people moved to the outskirts of London and beyond, the city will always remain a popular choice considering that it boasts an incredible 35,000 acres of parkland. Even as some are calling time on the urbanisation trend, we do not subscribe to this view and believe that urbanisation is a multi-decade trend that is set to continue especially as the vaccine rollout progresses. All of which means we remain positive on the outlook for real estate assets in the UK’s capital, especially compared to many other global cities.
If we are to go by patterns that followed the Spanish flu of 1918, we can also predict that consumption and purchase of important assets such as homes will be strong in the latter part of 2021 and onwards much like the trend seen in the ‘roaring 20’s’. As a result, and backed by a strong pound, the UK will catch up from the real estate lag that it has experienced in the last five years due to Brexit. In fact, UK listed real estate companies are at 20-30 year lows trading at substantial discounts to net asset value (NAV), and any weakness that we are likely to experience in the first six months of 2021 should be used as a purchase opportunity.
Disclaimer
The opinions expressed in this article are those of the author only and do not constitute investment advice. Please seek independent investment advice before making any financial decisions.
Author:
Jassim Alseddiqi
Group CEO of SHUAA Capital
