Global CIO Video: "There is still positive total return potential for equities"
Equity markets began the new year much like they had ended the old one, heading higher.
Neither the storming of the US Capitol nor the Democrat sweep in the recent Georgia Senate elections managed to derail the rally. In our view, the backdrop for 2021 remains conducive for risk assets. Although the resurgent COVID-19 pandemic and related restrictions are dampening economic growth for now, the vaccine rollout supports our forecast of an acceleration in economic activity beyond the first quarter.
At the same time, the supportive fiscal and monetary policies remain in place. We think this will create an environment in which real interest rates stay negative and earnings will recover into positive territory. In this environment, real assets such as equities usually perform better than paper assets such as bonds. This is why we think despite the elevated valuation after last year's rally, there is still positive total return potential for equities in particular.
We thus retain an overweight allocation to equities in a portfolio context, expressed through an overweight in emerging market equities. We also keep an overweight allocation to commodities.