INVESTMENT OUTLOOK 2021

Following a period of unprecedented volatility, including the highest volatility reading of all time in March 2020, it is difficult to imagine markets will keep that same pace in 2021. Promising vaccine developments and central bank support should help subdue volatility, but the potential for surprise remains. The wave of recapitalisations in equity markets is something to watch. And the investment backdrop continues to be shaped by ultra-accommodative central banks and low-to-negative interest rates; anything that unsettles this support framework would be cause for concern. Further, we face the risk that the fiscal and monetary stimulus measures put in place to combat COVID-related lockdowns are in fact too great, and that inflation, which has been dormant for 20 to 30 years, reappears.

One of the key upside drivers, particularly for equities, will be getting the pandemic under control. A vaccine, around which we have seen a number of positive developments, is the most critical element in getting back to a state of normalcy and increasing economic activity. However, the behavioural changes resulting from the pandemic have been extraordinary, and it remains to be seen how they will change the world longer term and what risks and opportunities this presents. Unemployment is certainly a risk, particularly as government programmes come to an end and companies must stand on their own. It is also important to question whether China can remain an engine of growth and how new political landscapes might ultimately impact the companies in which we invest.

In terms of investment themes, environmental, social and governance (ESG) investing is rapidly gaining momentum and will likely transform approaches to investing and engagement with companies. A great deal of sector rotation is also likely in 2021 – a trend that reinforces the importance of active management and maintaining conviction in investment ideas.

In summary, we believe investors should not be misled by the Goldilocks scenario, or picture of relative calm, that markets are trying to present – we would not go as far as to say everything is “just right”. While the worst of 2020’s challenges may be behind us, it is important to remain prepared for ongoing uncertainty in 2021.