If history tells us anything, crisis forges change.
Like other pandemics throughout history, COVID-19 led to tectonic shifts in society, markets, and government policy. People and businesses are rethinking traditional work structures, while inflation concerns are rising amid trillions in stimulus injections. But what impact does this have on investors?
To answer this question, this infographic from New York Life Investments pinpoints five trends to watch amid a COVID-19 recovery.
1. Inflation
Today, investors are closely watching inflation. Core factors that influence inflation include:
Increasing money supply
Rising raw materials costs
Between 2020 and 2021, the money supply in the U.S. rose over 28%. Meanwhile, building materials and supplies, as shown through the producer price index, have jumped 44% between May 2020 and May 2021.
In fact, as of May 2021, inflation has seen its greatest rise in over a decade, with year-over-year figures increasing 5%.
The Opportunity
To hedge against potential inflation risk, investors can consider the following asset classes:
Infrastructure
Bank loans
Gold
Commodities
Real estate
Treasury inflation-protected securities (TIPS)
2. Innovation
How companies navigate digital disruption will likely affect their revenues and future operations. Notably, during COVID-19, companies that adopted new technologies saw higher revenues than their peers, according to one survey.
The Opportunity
Frontier technologies have the potential to reshape markets and productivity both during and after a COVID-19 recovery. Here are among a few examples:
Artificial intelligence (AI)
Big data
Internet of things (IoT)
Robotics
Solar photovoltaic (PV)
3. ESG
Environmental, social, and governance (ESG) investing continues to break records, attracting nearly $2 trillion in assets as of Q1 2021.
The Opportunity
Within the sustainable investment landscape, three particular segments may be poised for potential growth: green bonds, solar PV, and transition finance.
Green Bonds: In the last year, green bond issuance has quadrupled to $131 billion globally.
Solar photovoltaic (PV) installations: Global solar PV installations are set to rise roughly 28% over two years.
Transitional finance: These are financing tools designed for big carbon polluters to adopt greener alternatives. In the future, these types of vehicles could accelerate. For instance, bonds whose interest rates would likely increase if sustainability targets aren’t met.
