Emerging Markets, Commodities, and the Return of Inflation as Key Investment Themes for 2021.

Emerging markets (EM) historically has been considered higher risk and more volatile than so called developed markets of western Europe, Australia, Canada and the United states

- Rainer Michael Preiss

Korea this year is the best performing stock market in the world and South Korea has handled the coronavirus pandemic better than most western countries. Next year and post coronavirus pandemic however we could see the outperformance of commodities and commodity led equity markets like Russia due a rise in inflation expectations in 2021.

The most important question in the world right now is whether the 40-year trend of disinflation is ending and whether the return of inflation could become a stronger market narrative in 2021. A temporary bust in inflation is one of the key market risks for 2021 as the global economy recovers from the global coronavirus crisis.

In my view, commodity led emerging markets and the return of inflation are hence the most interesting and most important macro story and investment case to watch for investors in 2021.

When I started out in the investment business in the mid 1990s emerging markets were still often considered as the “dark corners of the global economy” . Emerging markets” was a polite way of saying “poorly run and corrupt countries”.

Today however some EM offer good fundamentals and increasingly better governance and are the growth engine of the global economy. South Korea is a good example. Covid-19 has ravaged many economies all over the world but not South Korea.

Half a century ago, South Korea was one of the poorest countries on the planet, and nobody would have predicted that it would conjure up an economic miracle. In 1960, its per capita gross domestic product (GDP) was $158 slightly less than Ghana’s. 2021 GDP per head in PPP terms is forecast to stand at $44,530.