Alex Crooke, Co-Head of Equities – EMEA & Asia Pacific discusses which themes matter most as economies reopen around the globe and green momentum builds.

Key Takeaways

• Rather than viewing recent market developments as purely a “growth” versus “value” play, we believe investors should look deeper at the drivers and assess how sectors will fare as economies open up.
• Key drivers include green initiatives, with transport, particularly electric vehicles and their components, being an area of interest.
• Separately, health care remains in focus as it continues to evolve in the COVID-reshaped world.

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Alex Crooke: Hello there and welcome to our new quarterly Equity Perspectives. If we think about what’s been happening, this year is really dominated by vaccination and the development of COVID. We had the development of brand-new vaccines and the play out of how they’ve been distributed around the world. Now, obviously, some countries are well in advance of others, but that’s leading to market trends, trying to look forward into 2021 and understand how quickly economies will open up. So, this year we’ve seen definitely a trend away from 2020 growth-at-any-cost, I suppose, and all about defensive earnings, and more a perspective about what’s going to open up, how will new travel maybe change plans? How will investment spending from companies and consumers open up as the vaccine programs mean we can lift restrictions?

So different markets have been driving on some of those trends in different ways, but we’ve definitely seen a resurgence in I suppose cyclicals, industrials and recovery. And at the expense of some of the secular growth names. Now, I think it’s important that we don’t play it out as a sort of growth versus value. Some of the value sectors will continue to struggle; the secular trends are very negative when that’s on the high street or certain financial sectors. And some of the growth perspectives have got very long term to play out. And you’ll hear some of those growth perspectives in some of the conversations in this in this quarterly outlook.

But I think really it’s about cyclicality. So which sectors are going to recover very strongly as the economies open up and how are we going to see that play out in terms of profits for companies and therefore we hope share prices. And at the other side, I think the sectors that are going to struggle are probably more defensive areas related to obviously rising bond yields that we’ve seen when those will go higher, but also the sectors that investors have hidden in – so where there’s a source of cash to fund those investments in those cyclical sectors.

I think what we’re also going to see start to develop is some of the bigger secular trends that we’ve already been looking at around the environmental impacts, change of administration in the U.S. We should see the reintroduction of some U.S. initiatives in terms of climate change. And I think, again, in the Perspectives you’re going to see around electric vehicles, around green initiatives by governments, this is going to drive a lot of investment spending and therefore, again, opportunities for the companies we invest in.

I think one other aspect to think about that we’re going to see is global supply chains, which got severely impacted last year. And there’s lots of shortages as well developing in terms of chips, transistors for all sorts of applications, in terms of rare materials for maybe batteries and other developments. And how countries are developing their own shorter supply chains, how they may be developing industries nationally to cope with these supply issues. And again, we’re going to see opportunities, therefore, for the companies we invest in in terms of more localized production and industries to maybe work against some of those supply constraints. I hope you enjoy this quarterly Perspectives.

 

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