Covid may have brought the global economy to a virtual standstill, but as the world goes back to work, there could be rapid growth as business and individuals attempt to make up for lost time.
Will this mean an investment boom – and could you take advantage of it? Is it necessarily a good thing? At Continuum we are looking for answers.
What is an investment boom?
To economists a boom is a period of increased commercial activity. For an individual company, a boom means rapid and significant sales growth, while a boom for a country is marked by significant growth of GDP. In the stock market, booms are associated with bull markets, where investors are keen to buy shares confident that their values will increase. This confidence can be infectious, helping bring about the expected share price increases.
With the UK gradually returning to business as normal, it looks as though conditions could be right for an investment boom. Relief at the lifting of lockdown can easily translate into positive sentiment about market prospects, while pent up demand can mean full order books.
So are we heading into the new Roaring 20s?
A century ago, the Roaring 20s were a time of economic boom, based on recovery from the First World War and the Spanish Flu epidemic, supported by new technology. The 2020s provide some interesting parallels, although now it is the internet and working from home, rather than electricity, cars and the changing demographics in the workplace, that are helping to change the way the economy works.
Of course, the economy has cycles and a boom will not last. It can wind down as the economy reaches a stable new level, or it can come to a sudden halt in a bubble. A bubble is when the boom becomes irrational and will, like all bubbles, burst. The 1920s ended with a stockmarket crash and several years of economic depression. Governments and central banks around the world will be aware of the similarities and be working to avoid the economy becoming overheated. With interest rates currently low, it would be relatively easy to rein in any boom that starts to look like becoming a dangerous bubble.
So what is actually happening?
The FTSE has returned to a healthy level, actually a little higher than it was before the crisis although some sectors, such as hospitality are not yet seeing anything like a return to prosperity. However, optimism seems the prevalent mood. High levels of saving, the successful vaccination rollout and the easing of lockdown sets the stage for a surge in spending over the coming months.
Many commentators believe that a boom may be on the way. The Bank of England’s chief economist Andy Haldane has gone so far as to liken the current economic situation to a coiled spring, while Goldman Sachs predicted the British economy will grow by a “striking” 7.8% this year.
So how could you profit from a boom?
If a boom is coming, you may be keen to make full use of it. But rather than a return to the old normal it could mean transition to a new and quite different economy. Online businesses such as Netflix and Amazon may already be booming, while the old high street favourites may be shutting up some of their shops for good. The Healthcare sector may be flying high, while travel and aerospace have been brought back to earth.
You may need help to identify the investments that offer most exciting opportunities for a boom. But rather than trying to pick a winner, it could simply be time to spread and diversify your holdings. At Continuum we will be happy to sit down with you and help you prepare your investment plans for the future – whether or not we are heading for the boom years.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of an investment can go down as well as up. Past performance is not a guide to future performance.
When investing your capital is at risk.
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