Taking a look at the bigger picture
The year 2021 began with a lot of uncertainties particularly driven by Covid-19. Compounding these uncertainties was the huge political turmoil in the United States following the January 6 attack on the Capitol Hill which followed the world’s most powerful and leading economy’s election at the end of 2020.
The developments leading up, during and after the US 2020 election challenged democracy as a governance mechanism like no other in human history.
In Europe, the rest of the region still puzzled by Brexit, was learning to navigate the terrain outside of the union which had been consummated since the establishment of the common bloc.
The UK on its path was inundated with huge uncertainties following its break up with Europe and a fresh pair of hands at 10 Downing Street.
Simmering trade tension between the US and China, had become a recurring order and therefore less of an uncertainty thus posing low risk to global economic recovery.
Economic indicators from the two most advanced economies all began the year at stellar records, thanks in part to the huge quantitative easing undertaken by developed countries and aided by multilateral financial institutions.
As the year progressed all looked rosy buttressed by the rapid rate of vaccine developments and distribution, particularly in the developed world. Most economies were set to emerge from the Covid-19 slumber, which had curtailed domestic and between-borders trade.
At the tail end of the year, real worries resurfaced on multiple fronts.
First, the discovery of a new more transmissible variant in South Africa, dubbed Omicron, rattled the world, rolling back significant gains accrued through booster jabs meant to strengthen primary inoculations and insulate patients from severe illness.
By the time the year ended the Omicron strain dominated across most countries, posing more harm than earlier variants.
The emergence of Omicron has brought back to the fore debate about vaccine distribution, hoarding by developed nations and the practical implications of leaving behind the developing world.
The year, which was set to usher back normality, ended with more questions than answers and more uncertainties than certainties.
The biggest challenge with Covid-19, is its mutations relative to other viruses, which makes it more complex to deal with. It will not be surprising if other variants emerge in 2022, even as we are hopeful of moving past one of the darkest phases in human history.
At the tail end of 2021, two major developments occurred in the most powerful countries in the world, which are of fundamental consideration as we chart the path ahead. In the US inflation which has been dreaded began to creep up in ways that were, prior to, never seen before.
At the time of writing, the inflation in the US is near the 7% mark for December, which is a 40-year high.
These numbers only seem very normal in countries such as Zimbabwe, where annual inflation is above 60%, but not in the States. Consumers are feeling the pinch and the economic implication is such that the US Federal Reserve is being forced to rethink its crisis financing strategy.
In 2021 the Federal Reserve minted more fiat currency than at any point in its history.
For magnitude’s sake the amount minted by the Fed in 2020 and 2021 is more than twice that which was released in 2009 following the global financial crisis. Among other measures the Fed lowered interest rates, thus encouraging borrowing and consequently consumption, as well as increased its open market operations particularly bond buying, which typically increases liquidity in the economy.
These economic measures have a sure impact of driving inflation up.
It has thus not been a subject of debate, whether inflation would go up or not, but rather, the magnitude.
At current levels, the Fed will have to be more dovish, increase benchmark rate and round up quantitative easing, but the world is likely to already catch a cold.
Our view is that as inflation increases against increased debt levels, stock markets such as the NASDAQ and NYSE will continue to attract more funds ahead of other traditional asset classes.
Investors will shun holding fiat and investing in money market instruments such as US treasury bills and bonds. Risk aversion is likely to be lower as investors find momentum through stocks.
The recent over-the-roof valuation of some US corporations such Apple, Alphabet, Meta and Tesla, reflects on the underlying driver.
Although minimal, we believe the emerging developments in the US favour higher prices for safe haven assets such as gold. It may be good news for Zimbabwe, with primary mineral export contributing the most to export receipts is gold.
While other minerals such as platinum may be affected, we believe that there is sufficient demand elsewhere to counter the US demand scale-back.
Minerals such as lithium among other PGMs, have a very good 2022 outlook, which can potentially swell Zimbabwe’s mineral exports beyond the 2021 levels. Lithium is used in the production of cathodes used in the development of electric car batteries.
As the world rallies behind net zero emissions in its quest to address global warming, the revolutionalisation of the motor vehicle industry is pivotal.
Beyond the US, and also at the tail-end of the year, one of the largest property management companies in China, Evergrande defaulted on parts of its debt.
Several others were flagged as potential risks loomed which would have a serious effect on the Chinese economy and the rest of the world. If China’s economic growth is to slow down reflecting some underlying challenges, this would drive down China’s exports to the rest of the world and also scale back imports into China. The economy however remains strong and set to move beyond the Evergrande challenge.
This year, we face more of the same we encountered last year, save to say humanity is already permanently adjusting to certain realities that are unlikely to change even in future.
These realities include the use of blockchain in payments. Blockchain epitomised by cryptocurrency is a reality that is here to stay and with a sharp surge in payments globally during the pandemic years, blockchain offers a very convenient and costeffective way of transacting.
In its devolved form, cryptocurrency also offers a safe haven in value retention against inflation prone fiat. We are thus likely to see more and more indulgence, globally, of players adopting and utilising blockchain in their processes.
Another emerging reality is a devolved workspace which splits between the office and home.
This model is already being explored and pursued by some of the world’s largest companies on a long-term basis and is the future. Altering the workspace has its implications but if properly managed can drive companies’ bottom-line up and improve employee productivity. It however requires investments in systems such as softwares and hardware to complement the former. Countries with robust network infrastructure stand to yield better results from the adoption of this model.
Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net