Learn more about market trends Investing in 2021 – Living forward
Investing in 2021 will require investors to look ahead to what happens after the global pandemic. Climate change remains a key issue and sustainable investing is ever more important. Our Investment Outlook puts together our House View for the major asset classes in 2021 and offers you a compass to navigate your investments in the year ahead.
A good time to put cash to work
An unusual feature of 2020 was that many households were able to save money, despite the recession. While government support in the USA, Europe and Asia supported household income, lockdowns meant spending in service industries decreased. As a result, some households were able to save at high rates. Many investors may now have cash savings that could be put to work as investments.
Equities are here to stay
In financial markets, returns are the direct result of taking risk. Consequently, investors should ensure they include an adequate allocation of equities to build their capital over the long term. We believe equities will continue to offer attractive return prospects in 2021. The broad backdrop should remain supportive given very loose monetary policies globally and continued fiscal support. Consensus forecasts for global equities imply that 2021 earnings will exceed the 2019 level, which should support equities over the course of the year.
ESG investing enters the mainstream
Sustainability concerns attract ever more investor attention. Investing in financial products that meet environmental, social and governance (ESG) criteria has entered the mainstream.
As assets under management that adhere to ESG standards grow, listed companies are under increasing pressure to bring their business models and practices in line with these standards. More and more regulators are also demanding that firms consider ESG criteria. In response, fiduciary duties are gradually adapting to include sustainable investment principles. Investors benefit from more protection against prominent governance incidents, and resilient ESG performance.
There's also the soft factor of doing good. We believe this trend will continue, leading to further demand and support for sustainable investments.
Supertrends – Invest in long-term societal change
Investors are often well advised to think long term, despite periods of market turbulence. Supertrends is our high-conviction long-term thematic equity-investing framework spanning six social, political, economic and environmental issues. In short, it is focused on multi-year societal trends that we believe will lead to fast-growing business opportunities. We expect the stocks of companies whose products and services benefit from these trends to outperform over time, providing an appealing investment opportunity.
Eurozone – Pandemic strengthens ties
European countries reopened their economies earlier than the USA and were therefore a bit ahead in terms of the economic recovery. As Europe is hit by a second wave of COVID-19, we are seeing a renewed setback. However, once the pandemic subsides the Eurozone appears poised to grow above potential, especially as fiscal policies have successfully mitigated much of the damage lockdowns would have inflicted on businesses and jobs. However, government finances are stretched in several key countries like Italy, and investment demand is soft. Challenging demographic trends (i.e. an aging population) pose an additional headwind to growth potential. A successful long-term recovery from the COVID-19 crisis will depend on further effective fiscal and political integration. The creation of the EU recovery fund was a step in the right direction, in our view.