What are the best investment ideas in 2021?

5 investment trends to watch in 2021

While 2020 has proved we can never really know what each year will bring, there are a few themes we think will be prevalent throughout 2021. These include:

1. Covid-19
2. Biden’s presidency
3. Brexit
4. UK housing market
5. Renewable energy

Covid-19

In late 2020, we started to see the beginnings of how companies will adapt to the long-term implications of Covid-19. Ultimately, there are two ways a company can continue to drive profits: sales increases or cost cuts.

Some companies will experience the former as consumers adapt to post-Covid life. Increasing profits are especially likely for the stocks involved in vaccinations, and the healthcare industry as a whole. Even Warren Buffett has taken an interest in healthcare stocks, adding more than $1.8 billion in each of AbbVie, Bristol Myers Squibb and Merck, and $136 million in Pfizer stock.

Discover the healthcare stocks to watch in 2021

Remote working, learning, shopping and entertainment services could also continue to see growth as lockdown measures tighten and relax periodically. Although, any returns to normalcy could signal the end to this run. This would mean companies like Zoom, Amazon, Ocado and Netflix could see share price fluctuations throughout 2021.

However, with no end to the pandemic in sight, we’ve seen a lot of companies resort to cost cutting in order to survive. The economic outlook has meant more employers than ever are resorting to redundancies in order to cope with the idea that the economy may not recover to pre-pandemic levels until 2027.

It’s important to be aware that cost-cutting measures can end up creating a disparity between the economy and the market – this happens when a company’s bottom line becomes increasingly profitable, but it’s stock value remains low. This is something to watch out for, as it could lead to a stock market correction.

As the coronavirus pandemic continues to cause ripples across financial markets, including stocks, indices, commodities and forex, you can speculate on the market movements with CFDs. You’ll never take ownership of the underlying assets, which means you can benefit from both rising and falling prices.

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If you want to focus on longer-term movements instead, you can invest in shares, ETFs and investment trusts using a share dealing account – with commission-free dealing on US stocks, and as little as £3 commission on UK shares.¹

What do our analysts think?

‘Markets have grown accustomed to relatively dour economic data, with stocks having bottomed well ahead of the shocking -32.9% GDP reading back in July 2020. While we are unlikely to see another similarly dramatic economic decline anytime soon, the vaccine rollout will gradually shift the focus back onto economic data as a gauge of how things are progressing.

Fortunately for bulls, it is evident that markets are relatively forgiving and are likely to continue finding value for stocks as long as things are expected to continue improving.’ – Joshua Mahony.

Biden’s presidency

In 2021, Joe Biden will be sworn in as the 46th President of the United States. There’s plenty of speculation about the impact his administration’s plans could have on the stock market – including his promises to be tougher on tech companies, boost environmental efforts, raise taxes on wealthy Americans and continue to condemn China’s actions in Hong Kong.

Although, as the Senate retains its Republican majority, a lot of the Biden’s policies could never come to fruition – meaning some of Trump’s more ‘market friendly’ policies might remain in place.

However, in the short to medium term, markets have responded to Biden’s election favourably. Perhaps because a Democratic presidency will likely carry with it a larger coronavirus-relief bill. Coupled with the vaccine roll out, this means Biden’s administration could be on track to provide the much-needed boost to the US economy.

For example, under a Biden administration you might want to focus on renewable energy stocks, the healthcare sector and cannabis stocks – all of which could see a positive change under a democratic president. On the flip side, the tech sector and firearms industry could see more regulation.

Whichever way the market moves, you can take your position with CFDs or invest via our share dealing account.

What do our analyst’s think?

‘The questions about the regulation of Big Tech seem to have gone away for now, but the sense that the tech giants need reining in could well resurface – hitting these stocks just as they begin to struggle thanks to the revival of value stocks and rising bond yields.’ – Chris Beauchamp

Brexit

A lot of the UK’s relationship with the EU will remain up in the air for the foreseeable future and it’s likely that we’ll see talks continue in some form throughout 2021 – even if a deal is secured this year. However, there are a few aspects of Brexit we can expect to see come into play during the year. For example, from January 2021, anyone visiting EU countries will need to fill out more documentation and experience different border controls, while the immigration will become points based for anyone wanting to work, live or study in the UK.

While the UK has remained a member of the EU customs union during the transition period, that will end on 31 December 2020, which means GBP could start to behave differently than it has since the 2016 referendum. Having said that, it’s likely the pound will remain volatile throughout trade negotiations with the US and other leading global powers.

The markets to watch for Brexit throughout 2021 will be vastly the same as they’ve always been – the FTSE 100, UK blue chip stocks – such as Persimmon, Travis Perkins and Barclays – gold, and sterling currency pairs, such as EUR/GBP and GBP/USD.

You can trade rising and falling markets with us – enabling you to speculate on Brexit price swings as well as hedge any existing positions you might hold.

Find out more about trading Brexit

What do our analysts think?

‘A no-deal situation could see some significant disruption, but even then the two parties will have to go back to talks to try and repair the relationship. Although it’s likely the damage will have been done and much goodwill will have been lost.’ – Chris Beauchamp

UK housing market

At the end of 2020, the UK’s annual house price growth rates are at a five-year high and mortgage approvals are at their highest level since 2007. The increase is largely due to the stamp duty holiday, which sparked a wave of house sales as people shifted their investment decisions forwards. However, the holiday expires at the end of March 2021.

Add to this the expectation that unemployment rates will peak in summer 2021 and the fallout of the UK leaving the EU, there could be huge downward pressure on house prices and activity in the market.

Learn more about Covid-19 and the housing market

Speculating on the housing market in the UK is possible via the shares of companies involved in the industry – such a Rightmove, Taylor Wimpey and Persimmon – or via a real estate investment trusts (REIT).

Learn more about investing in REITs and discover how to short the housing market

What do our analysts think?

‘It is worthwhile noting that the government will be well aware of the benefit a buoyant housing market will have upon spending and investing. Thus there is a good chance we could see supportive measures such as the stamp duty holiday extended if prices start to come under pressure in the new year.’ – Joshua Mahony

Renewable energy

Renewable energy is expected to account for 12.4% by 2023, however due to policy uncertainty and the Covid-19, the majority of renewable projects have been delayed. The 2021 forecast for renewable energy capacity is expected to be similar to 2019 level – totally just below 200GW.

Renewable electricity capacity addtions, 2007 - 2021, updated IEA forecast

Clearly the rise of renewable energy still has a long way to go but Joe Biden has already made it clear that he aims to reduce US reliance on coal and other fossil fuels, and re-enter the Paris agreement. This could be the push other countries need to refocus their efforts too.

As a result, oil and gas markets could suffer, while renewable energy stocks could see significant growth. You can invest in renewable energy stocks and exchange traded fund (ETFs) via a share dealing account, or speculate on their price – without taking ownership of the underlying asset – with a CFD account.

Discover our 10 renewable energy stocks to watch in 2021

What do our analysts think?

‘Electric vehicle firms have been much in focus, and Tesla’s admission to the S&P 500 is a sign of its growing respectability, but there is more to be done in terms of adoption of both cars and power sources.’ – Chris Beauchamp

Best 2021 investment ideas summed up

• Predicting trends is never completely possible, but there are few general themes we can be fairly sure will continue throughout 2021
• Covid-19 is set to impact companies throughout the year, some will see increased investment flows – such as healthcare stocks – while others will likely suffer without an economic bounce back
• Joe Biden’s presidency could have a positive impact on the US economy if he provides a larger Covid-19 relief bill. It’s also likely his presidency will increase investment in renewable energy stocks and the healthcare sector, while tech firms could suffer
• Brexit continues to dominate UK headlines, with prospects of trade negotiations causing fluctuations in EUR/GBP and UK stocks
• The UK housing market saw a rise in 2020 due to the stamp duty holiday, but could see a correction in 2021. This could impact upon companies in the industry, and the price of REITS
• Renewable energy is set to reach pre-pandemic levels again in 2021, supported by a refreshed focus on becoming carbon neutral

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