Year of the Ox: A year of renewal

2021 is the Year of the Metal Ox. In China, the Ox is considered a diligent, honest and strong animal that is associated with good harvests and fertility. The steady and patient Ox would have been first in the Chinese zodiac, if not for the rat which hitched a ride and subsequently won the race by jumping off before the Ox could cross the finish line.

The rat might be the first to cross, but the Year of the Rat ranks as one of the poorest years for stock market returns among the 12 zodiac animals in the Chinese calendar, with an average return of 3.3 per cent. In fact, one of the worst (Rat) years happened during the Global Financial Crisis in 2008, with the S&P 500 declining 39 per cent.

Although the S&P 500 finished 2020 (Year of the Metal Rat) with a decent gain of 16.2 per cent, the gains were largely centred on the five biggest stocks of the index, namely Facebook, Apple, Amazon, Microsoft and Google (FAAMG). If one excludes the FAAMGs, the S&P500 posted a modest return of 6.5 per cent.

Au contraire, the last time the steady Ox visited us in 2009, the S&P 500 staged a strong return of 28.6 per cent, in the aftermath of the Global Financial Crisis.

In Chinese culture, the Ox is a valued animal because of its role in agriculture and is often associated with the coming of spring, renewal and a good harvest. Likewise, in India the cow is a revered, sacred symbol of life.

Needless to say, the Year of the Ox will be welcomed with open arms. Throughout this year we should see a world that is steadily returning to normal despite continued uncertainty, while also rapidly accelerating into a transformed future.

While the fight against Covid-19 is not over, there is increasing hope that the Year of the Ox will be a year of renewal where individuals, households and businesses can start to look forward to planning their futures instead of just grinding through the present, wondering when this pandemic will end.

This process of planning is important as it will be a different world we go back to, even when the pandemic is well under control. For instance, the shift to online retailing is irreversible. Online consumers are notorious for lacking brand loyalty and have a short attention span. They place greater importance on other factors such as friendly, easy to navigate apps and interface.

Although online retailing represents significant opportunities for corporates, it will need the development of new skills, capabilities and pricing models. Corporates need to upskill to deal with these new challenges.

The Covid-19 pandemic has also sped up transition in areas such as artificial intelligence and digitisation. The acceleration in the use of technology, digitisation and new forms of working will gather further momentum with more companies announcing a shift towards a part of their workforce working from home permanently.

But it is not just the digital world that has benefited amid Covid-19. Because of its important and traditional role in historical, agrarian China, the Year of the Ox is usually associated with positive returns in the soft commodities.

Years of poor returns in the commodities space have resulted in structural under-investment, which was further exacerbated by the pandemic. This is now coming back to haunt us, with the limited production capacity unable to meet a V-shaped, vaccine-driven demand recovery. Nearly every commodity is in deficit despite lockdowns.

With governments focused on financial market stability post the Global Financial Crisis in 2008, the imposition of regulations such as the Dodd-Frank and Volcker rulings resulted in market volatility dropping sharply. The once highly cyclical commodity markets and old-economy value stocks were trapped in a mid-cycle rut, unable to enter the expansion phase of the cycle, which in turn became dominated by tech behemoths such as the FAAMGs.

Policy focus will likely shift from providing financial stability to the need to deal with political issues such as climate change, ageing populations and income inequality. The Federal Reserve acknowledged as much last year when announcing its new policy framework, stating that "full employment is a broad-based and inclusive goal". A cyclically strong economy goes a long way towards solving these problems.

The Year of the Metal Ox will be the year when the world begins to emerge from Covid-19. We expect a world that is more indebted, more unequal and more local to result in below-average returns across traditional asset classes. But we believe investors do have the opportunity to earn higher returns by positioning across 5G, fintech, healthtech and greentech.

It will also pay to remember some of the Ox's characteristics that make the animal much revered throughout Asia.

Be diligent and research before investing. Be persistent and stay invested, curbing our natural instincts to trade. And just like the steadfast Ox, when market volatility rises, be disciplined. With adversity comes opportunity. We wish you a Happy Chinese Niu Year!

• The writer is regional chief investment officer, UBS Global Wealth Management