Macroeconomic risks next year

2021 is full of opportunities, but also risks. In the same way that a company plans ahead for the coming year and prepares a budget, so do operators and investors. 

Macroeconomic analysis refers to the interpretation of the main changes in trends and how they affect the portfolio. Consider monetary policy decisions (for example, the Fed’s shift from an inflation target to an average inflation target), political decisions (such as Brexit), decisions related to international trade (for example, the birth of the RCEP, the Regional Comprehensive Economic Association, the world’s largest free trade area) or conflicts (such as the trade war between China and the US). These changes alone can cause strong turbulence in financial markets, in all of them: currency, securities, fixed income, etc.

What to prepare for 2021?

If we refer to a specific country, macroeconomic risk has four components: financial, commercial, political, and business environment. For example, in 2020 in the United States, the biggest risks from a macroeconomic point of view have been, in this order, politics, the business environment, and commercial and financial risks. Obviously, the presidential elections in the country are at the top of the list.

In 2021, the world’s largest economy (the United States) is at risk of high corporate debt. Likewise, political polarization is seen as a threat in 2021. Finally, low productivity may have a lot to say in next year’s economic performance in the United States.

Another risk that must be taken into account, in this case at a global level, is the weak economic recovery. The best possible scenario is still that we see an acceleration in global demand, but it all depends on containing COVID-19.

Also, there is a risk that investors will become complacent. Complacency is a problem when it comes to investing, as it reduces due diligence and increases dependence on decisions made by others. For example, let’s think about the stock market and the US dollar. The consensus believes that the market will continue to rise with the support of the Fed and the impressions of the United States Treasury, which, in one case as in another, will go higher. So a lower USD should drive equity prices higher. However, if, for whatever reason, there is a feeling that one of those two institutions is going to reverse its decisions, there is a high risk that the economy will go from growth to slow growth and then to no growth, which it is known as the hard-landing economy or “hard-landing economy.”

In short, there is always a risk when one gets involved in the financial markets. Risk, by definition, cannot be reduced to zero. However, the better we prepare to deal with it, the less it will affect portfolios.

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