The effects of the coronavirus pandemic have ripped through the global economy and since March 2020 caused volatility in the stock market.
Investors across the globe have so far dealt with negative oil prices, surging inflation, an energy crisis, and supply chain disruptions, among many other events.
The most recent has been the Omicron virus strain, which switched markets to a risk-off mode as the number of infections continue to rise and health officials assess the efficacy of current vaccines.
Here are three key investing lessons of 2021 from Blackrock Investment Institute:
It’s a restart not a recovery
Blackrock highlighted the importance of staying anchored to your framework as economic activity restarts.
“Our anchor to interpret this macro environment has been that normal business cycle logic does not apply. The COVID-19 shock was more akin to a natural disaster, followed by a powerful restart of economic activity,” it said.
It pointed out that the economy is going through a restart, not a recovery like the long grind that was seen after the 2008 financial crisis.
Instead, it is “more like the world turned the lights back on” as economic activity surges again, corporate profits rebound at pace, and developed market equities rip.
The chart above shows how analysts have scrambled to upgrade their earnings forecasts to a 52% jump in 2021.
Soaring inflation is currently being driven by supply bottlenecks, along with unusually strong household spending on goods, rather than services.
“We expect it to settle at higher levels than pre-COVID even as pressures from supply bottlenecks ease. In the past, central banks would already have started to raise policy rates, and bond yields would have spiralled upward. Not this time.”
The move to net-zero
An increasing number of companies are turning green as the world battles carbon emissions and aims to reduce greenhouse gases.
From car manufacturers to oil giants, and banks to retailers, investors are keeping a watchful eye on those who are making commitments to reduce their carbon footprint and waste, and those who are slow on the uptake.
Blackrock said traders need to continue to remember that the journey for the world to reach net-zero is starting now, and not at a distant point in the future, meaning they need to start adapting their portfolios.
“The net-zero story, it’s a now story,” it said.
Surging fossil fuel prices this year have exposed a lopsided transition toward low-carbon power, but it still sees “an orderly transition in the medium-term with bumps on the way leading to growth and inflation volatility”.
There has also been a shift toward sustainable investing, giving sustainable assets a return advantage for the future.
Earlier this year, data from OnePlanetCapital revealed that the environmental, social and governance-based investment market is set to double this year, with 12% of traders planning to move investments to ESG related funds.
Three quarters of the 2,005 UK investors surveyed said investing in businesses that tackle climate change, or have a positive impact on the environment, is important to them, while 70% of investors admitted that they would avoid investing in a business with a negative societal, corporate governance or environmental impact.
Carbon-heavy companies are no longer waiting for new climate policies, but are changing their business models now, opening up selected investment opportunities.
Watch: Throne Speech 2021: Time is now for 'bolder climate action' feds say
Courage of conviction
Market moves have been particularly volatile over the last year and a half, with many surprises along the way.
“Having courage of conviction is not about adding risk per se, it is also needed when your framework tells you it’s time to pull back on risk-taking,” Blackrock said in the weekly market commentary.
One example of this lesson during 2021 was the swings in 10-year US Treasury yields as different market narratives on growth, inflation and the virus took hold in quick succession.
It expects any new virus variants to delay, but not derail, the restart to the global economy.
Watch: What is inflation and why is it important?