The world is eagerly waiting for the discovery of a vaccine for COVID-19 and the return to normalcy, whose impact will not be positive for all asset classes.
The discovery of a vaccine for COVID-19 and return to the normal situation will boost the economy, but volatility across the investment products is likely to occur. For example, in the case of gold, the prices might be corrected after having a dream run this year and the prices of equity will return to normal in the short run.
The further cut in interest rates will not occur as they are already on their historic lows, which will impact the debt funds which perform when the interest rate plummets.
Here is how the various asset classes are likely to react according to industry experts: –
GOLD
Post vaccine approval, gold prices are likely to correct. The uncertainty element resulted in the hike in the price of the gold, but no asset can move in a straight line forever, hence the prices of gold will correct after a discovered vaccine is approved. Gold prices closed at an all-time high at 55,922 rupees per 10 gram on 7th August, but the prices fell sharply as the news of Russia discovering a vaccine came in. It fell over 6% and close 3500 rupees per 10 gram in a matter of 5 days. However, correction in prices after the discovery of the vaccine is believed to be temporary and not as sharp as the economies were in distress before the pandemic. Low-interest rates to support economic growth and printing of currencies, especially the US dollar will support gold prices over the next 2 to 3 years. Correction in gold prices should be considered as an opportunity to invest, however, the allocation of 10-15% of the portfolio should be made.
EQUITY
The equity market has seen a sharp recovery from its lows in March. It recovered around 47% from March to August 20th. The discovery of a vaccine will be positive for the equity market. The market has to perform as per the performance of various companies, hence the investors are advised to stick to their asset allocation to tide over volatility. Following their goals through mutual fund SIPs is ideal for long term investors.
DEBT
The interest rate of debt is likely to be unaffected for a while. However, a hike in bond yields is expected as an immediate reaction as the central banks might stop buying bonds, which is keeping the interest rates low. However, central banks might take more time to hike interest rates. Debt markets can expect a neutral environment as in interest rates must be kept low for a stable environment to support economic growth as an increase in interest rates might halt recovery. Debt funds may be a better fit than bank FDs as they are more tax-efficient.
