The US dollar will have a noticeable level of inflation in 2021, according to Ruchir Sharma. The strategist believes that in the coming years the stocks that retain their value will receive a better valuation.
Commodities like gold and Bitcoin will perform well in the next 3-5 years, according to Morgan Stanley’s head of emerging markets and global strategy. Ruchir Sharma showed his vision of how the economy and the global financial market will behave after 2021.
Sharma, a writer, and executive at Morgan Stanley, said that current conditions have led the vast majority of stocks to be overvalued. Among the factors, he mentions the high monetary liquidity and the low-interest rates that exist in most first world countries. This situation would be a preview of an inflationary spiral that would consume the economy as a consequence of the money that central banks inject.
The strategist believes that it is a good time to invest in commodities, since their growth potential in the next 3 to 5 years is better than that of stocks, except for some video game companies.
Concerning commodities like gold and Bitcoin, Sharma stated that both are speculative instruments. However, they are investments that prove how little confidence people have in the implementation of financial policies that central banks currently need to implement.
He added that he considers this a demographic issue since older investors (boomers) usually invest in gold. In contrast, millennials are increasingly turning to Bitcoin and other cryptocurrencies. He stated that having around 5% of his investment portfolio in gold “is not a bad idea” and thinks that the most adventurous are exploring cryptocurrencies.
Why Bitcoin and Gold Will Perform Well in 2021
Central banks usually deal with cash-rich environments, as is the case in many of the world’s economies today. This situation allows people to understand Ruchir Sharma’s statements accurately.
Concerning the factors that would lead to the scenario that the executive envisioned, he said that these would be the availability of a vaccine against COVID-19 and the rapid inflation that would come once it exists.
The current situation in most countries of the world has disrupted consumption patterns. As a result of financial aid and other incentives, there is a lot of money on the street. On the other hand, people are not consuming as much as they were used to.
The scenario that Sharma envisioned depends on the normalization of the current situation and the possibility of “herd immunity”. In this context, people will resume their economic activities with greater confidence. Likewise, inflation will manifest itself when they begin to buy the products available in the market with money artificially printed.
Increasing interest rates is one of the mechanisms that central banks preferably use to control inflationary environments. In theory, this leads to more people to think about saving rather than borrowing. Sharma believes that those who bet on explosive growth stocks will switch to a market where they bet on stocks — like Bitcoin — that retain their value.
When it comes to their behavior in the financial markets, Bitcoin and gold have a lot in common. They show a historical price correlation of 70%, and everything seems to indicate that this will continue to be the case.
By Willmen Blanco