We're going to throw some predictions we have for the year.
And we are going to keep track of our predictions going forward.
We recognise that some of our predictions might be wrong, but we aim to be right more often than not.
So take our predictions with a pinch of salt 🤞
1. US Stock Market Will End 2021 Higher
Specifically, America's stock market (aka S&P500) will end 2021 higher.
Why?
1. They elected a Democrat President, Joe Biden.
Historically, the US stock market is up in the first year of a Democrat President.
Even more, interestingly, Democrat Presidents tend to have higher total 4-year return than Republican Presidents.
Forbes did an analysis on the Presidents and their returns to show that difference in performance.
2. Stock markets are up after a bear market.
We entered bear market territory on 11 March 2020.
We exited the bear market territory, and into the bull market territory, on 23 March 2020 or 18 August 2020 (depending on what "bull market" definition you use).
The stock market tends to trend higher in the next 18 months after it bottomed.
I'm betting that the markets are going to be higher even after 18 months.
2. STI to Stay Flat for the Year
On the previous point, we talked about the America (US) stock market.
Here, we're going to talk about the Singapore stock market.
Financials (namely the top 3 SG banks) are 40% of the STI.
Financial companies tend to do well in high interest (spread) environment.
With the US Fed set to keep rates low until 2023, expect the banks to not perform exceptionally well in 2021.
Furthermore, given that the banks had been fairly aggressive in lending money out to businesses in 2020, and Govt support for businesses is set to stop in 2021, we expect a rise in default rates, and hence a hit to the banks' earnings.
And what happens when 40% of the index doesn't do well?
The index doesn't do well (might be a little far-fetch but considering we don't have an SG-Financials ETF, this is as close as one we can get).
The STI started the year at 2842.64.
Analysts are expecting it to end at 3000 to 3200, a 6%~13% increase.
We think it'll probably be closer to 3000.
Unless, of course, the other 60% meteorically rise to some historical highs.
3. Air Travel Will Recover
As the vaccines roll out, as countries need tourism to boost its economic recovery, as people start to feel so dry that they need to travel and drink overseas water, tourism will pick up.
Most likely, people are still going to be travelling by air.
We'll see more visitors visiting various airports around the world this year.
PS: Ya, we know, this is kind of a no-brainer kind of prediction 🤷♂️
If we could invest in airports (like an airport REIT or something), I might actually invest in that just to capture the potential that's coming up in 2021.
But because there isn't, I invested in the next closest thing equivalent to that: SATS.
I do think it's kind of like a monopoly where airlines don't really have other choices besides using SATS in Singapore for its food services.
But that's my view, and I bought when prices were low.
My prediction?
SATS will reach $5 by end of the year 2021.
Disclaimer:
I bought SATS during the midst of the COVID crisis.
I think SATS will do well this year as air travel recovers, and as more tourists visit Singapore.
Do your own research, your own analysis and groundwork.
I'm not recommending you SATS.
Recommended Read: Save in CPF or Invest in SATS?
4. SIA Will Not Pass $5 By End Of 2021.
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Although I think air travel will recovery, airlines not so much.
I have a negative bias towards airlines - I find them to be lousy businesses to invest in.
Why? Because Warren Buffett said so.
Or more specifically, it is expensive for airlines to scale and grow fast, whereas all it takes for Facebook to add another customer is to add just 1 more server to its server racks.
Are airlines important business: Yes
Are airlines great investment: No
Of course, if you bought at a low enough price; like $3 during the whole COVID19 pandemic, that would make it look like a genius investment.
But generally, I prefer investments that have a competitive advantage and scales fast.
Airlines just don't make the cut.
That said, airlines face serious issues.
1. You can fly, but not at maximum capacity.
Airlines are in a competitive business and getting almost maximum capacity sold is the key to profitability.
Even as travel restrictions ease, maximum capacity is not going to happen this year.
So, it's going to be a long way from getting back to profitability.
2. Less business/first class travellers
Business and first-class travellers make up the majority of airlines' revenue.
These are usually business travellers, executives travelling overseas for some business deals etc.
With COVID, we have now learnt that the same can be done over MS Teams, Skype, Zoom, or whatever other tools you like - it's a lot cheaper than air travel and it still gets the job done.
So why would businesses still want to let executives fly around when there's a cheaper alternative?
Don't take it from me only, even Bill Gates agree with this.
Recommended Read: Why You Should Max Your CPF Retirement Sum Early
Conclusion
These are our predictions of what we think will happen in 2021.
We are not 100% sure we will be correct.
But we do think we probably will not be too wrong.
As always, do your own research, due diligence, own analysis, and invest according to your risk appetite.
We are not giving you recommendations, just our predictions.
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