Trading Themes Prospects in 2021

 

After the volatile year we had in 2020, it appears that 2021 is both the continuation of the old market environment as well as the start of a new one. . Entering the post- pandemic era, we are likely to see several changes such as an improvement in regards to the pandemic and the global economic recovery. It is expected that volatility will not change and is inevitable, which will create various opportunities that traders can profit from. We have grouped these opportunities into the top ten investment opportunities of 2021.   

 

Reflation trading

 

Since last year, inflation expectations have continued to rise. In the new year, the market is flooded with a lot of liquidity under the background of global easing and unchanged stimulus measures, which means that inflation expectations will intensify. In January, the US 10-year Treasury bond yield rose above 1% and received widespread market attention, reflecting the increase in inflation expectations.

 

The bet on rising inflation is growing popular, and the yield curve of long-term bonds tends to steepen when long-term bond yields increase. Shorting long-end Treasury bond futures and longing short-end Treasury bond futures may become a viable option. Investors should pay attention to a sharp rise in long-term U.S. Treasury yields, which may prompt the Fed to take control of the yield curve. Such expectations appeared frequently last year, and the Fed has publicly discussed this possibility.

 

When it comes to anti-inflation assets, the first assets we think of are commodities. Chief among them being gold, which has the most prominent anti-inflation characteristics. . We have already discussed the prospects for gold prices in a previous article, so we will skip that here. If the Fed decides to adopt yield curve control, the decline in long-term nominal interest rates could benefit gold significantly.

 

Inflation expectations superimposed on the economic recovery to promote commodity prices will be reflected in the rise of commodity-linked currencies.   These currencies are more sensitive to the external economic environment and they include the Australian dollar, the New Zealand dollar and the Canadian dollar.  There is a corresponding upside as the three countries have performed well despite the pandemic, which may result in a good rate of return for investors. In addition, cyclical stocks regarded as high-yielding assets may also be favored.  Finally, sectors such as oil, natural gas, steel and other similar sectors will likely follow the increase in inflation expectations and rally higher.

 

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