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2020 marks the end of the neoliberal era and the beginning of a system we call ‘state-sponsored capitalism’. Covid-19 serves to accelerate this shift. All this increases the merits of a strategic asset allocation guided by secular trends, such as China’s rise to core asset class status, life science disruptions, and energy abundance.
These are the major investment trends to watch for in 2021:
The big picture: contain and heal
- After the unprecedented exogenous shock in 2020, we believe the health crisis will be contained in 2021 and continued policy support will sustain the recovery.
- We expect the world to reach pre-crisis output levels in the second half of 2021, but the pace of recovery will vary. China already reached this level in the second half of 2020, the US will follow sometime mid-year, while the eurozone, Japan, and most emerging countries will lag.
- The new US administration may improve relations with global partners, but many tensions will remain.
US – China competition: growth spurt ahead
- China and the US faced a mutual ‘Sputnik moment’ when China became an economic superpower.
- Longer-term, intense competition should spur further innovation in both nations, and thereby increase economic growth.
- The swift economic recovery after the Covid-19 pandemic, the improved US-China relations, and the country’s new five-year plan are additional reasons for broad-based exposure to China.
- Meanwhile, the US economy is also likely to leverage its strong position. We believe that growth will expand and cyclical sectors will deliver an above-average performance.
Valuations: expensive everything?
- Following the recovery in financial markets in the second half of 2020, and given the global uncertainties, valuations across asset classes based on traditional metrics seem stretched.
- However, we believe they do not tell the entire picture and continue to see valuation-based opportunities.
- In fact, investing when valuations are low can be viewed as sailing with the wind at your back, whereas when valuations are high, you are sailing against the wind.
Low probability, high impact: three ‘what if’s’ in 2021
- What if we suffered a global internet and infrastructure outage? Supply chains are cut, cash in banks is inaccessible, hospitals are unable to access vital data, streets are gridlocked, and planes are grounded.
- What if the world recovers swiftly from Covid-19? Inflation picks up early in 2021 and we see GDPs back at pre-crisis levels.
- What if the world truly embraces the issue of climate change? Manufacturers clean up their acts and the top-polluting nations commit to early carbon-reduction targets.
Investment trends 2021
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