What is the long-term impact of the coronavirus on the global economy and financial markets? What is in store for the German economy and what does it mean for investors? At business:forum Markets, Commerzbank research experts presented their outlook for 2021 to around 1,000 of bank’s corporate clients.
For more than 15 years, the Corporate Sales in the Capital Markets & Advisory (CMA) division has been organising “business:forum Markets” – an event for corporate clients that provides an economic and market outlook for the year ahead. The event was hosted by Roman Schmidt, Divisional Board Member Capital Markets & Advisory (CMA). Research experts from Commerzbank explained in a webcast what companies and investors can expect in 2021.
business:forum Markets has established itself very successfully as an annual kick-off event for our corporate clients. Previously always a physical event which the regional Corporate Sales units in Berlin, Frankfurt, Düsseldorf, Hamburg, Munich and Stuttgart used for personal and strategic discussions with clients. However, due the pandemic, the forum was held in an interactive digital format for the very first time on 26 and 27 January 2021. More than 1,000 participants had the opportunity to put their questions live to the moderator Corinna Wohlfeil (TV presenter on ntv) via a chat function and clients made great use function. Research experts: Jörg Krämer, Chief Economist of Commerzbank, Ulrich Leuchtmann, Head of Foreign Exchange Research, Achim Matzke, Head of Technical Analysis and Index Research, and Eugen Weinberg, Commodities Expert, provided information on currency fluctuations, commodities and market technology (area of market analysis for forecasting price trends). They also presented their outlook for the 2021economy and answered the complex questions submitted by our corporate clients.
How will global interest rate policy affect markets, what will happen to national debt and will the predicted post-coronavirus boom really materialise? All are topics were of particular interest to the participants given the gloomy mood caused by an extension of the coronavirus-induced lockdown.
Who will pay for all this?
Given the national debt, this question was bound to be asked. According to Jörg Krämer, the sustainability of national debt is a rather soft concept: “A state is never required to repay its debt. It simply has to make sure it always gets enough follow-on buyers for its government bonds.” Krämer therefore does not expect debt to be cut. In fact, “monetary and fiscal policy remain expansionary as the coronavirus is changing how people think,” says the Chief Economist. Although further government borrowing was unthinkable before the coronavirus pandemic, he pointed out that the crisis has taught people how important the government is. “The renewed confidence in the state will give politicians a lot more room to act expansively,” Krämer adds.
Expansionary ECB policy and inflation
Krämer says the prospects of longer-term expansionary fiscal and monetary policy will lead to financial markets in the eurozone completely decoupling from fundamental data over the next two years. Markets will remain sedated and asset price inflation will continue. This means that, for now, equities and real estate will continue to rise in price, unlike consumer goods.
The high liquidity on financial markets unleashed by the European Central Bank’s bond purchases, coronavirus aid and loans to companies and coronavirus-induced unemployment situation is keeping the prices of consumer goods stable, while driving up asset valuations. As a result, traditional goods price inflation is expected to remain low, but inflation risks will persist in the medium term.
Post-coronavirus boom: economy will recover
According to Krämer, the economy is expected to recover relatively quickly post-coronavirus. People who weren’t affected by unemployment or short-time work are holding back on spending during the lockdown, businesses are closed and travel is cancelled. In a stable environment and as the number of infections declines, Krämer expects consumer spending to catch up, which will have positive effects on the economy. And although there will be a wave of insolvencies, experts are not expecting an “insolvency tsunami”, as companies will have significantly raised their equity ratios.
What does this mean for investors exactly?
Because of the current asset price inflation which is set to continue for quite a while, “2021 will be a good year for equities,” explains Achim Matzke. It is true that European and German equities (with the tailwind of central banks’ ultra-loose monetary policy and the economic stimulus programmes that numerous governments have in place) are already ahead of the curve and anticipated that the coronavirus pandemic will subside. But the medium and long-term prospects remain good. “Equities are also a proven way of combating inflation as they represent real value,” advises the research expert.
In times of crisis, a mixed portfolio of equities/funds as well as gold and real estate is even better, the expert says. Investing in different indices (MDax and SDax) would also be worthwhile.
The event closed with a summary by host Roman Schmidt: “Of course, we hope to hold next year’s edition of this event in person. But we’re really pleased with the feedback which has been consistently positive – even the German national football team would be delighted with the strong viewing figures for this year’s event.”
“We have enjoyed an inspiring business:forum Markets 2021 as we continue to deliver a high-quality series of events focusing on #capitalmarkets! The programme included four exciting interviews with our professional and sought-after experts.” Simone Mrasek, Head of Corporate Sales Exclusive & Classic in the Capital Markets & Advisory division.