2021 outlook: A year of healing
As the curtain finally falls on 2020, we look at what may be in store for investors next year.
As we head towards the holiday season, Europe is once again beginning to emerge from another round of lockdowns. But while the upcoming festivities will feel far from normal, glimmers of hope are appearing on the economic horizon.
Several key developments are starting to offset the gloom. For one thing, China has largely eradicated the virus and, courtesy of its successful track and trace system, has a much greater chance of preventing future outbreaks.
But most crucially, progress on developing safe and effective vaccines has continued apace. The UK is the first country to approve a COVID-19 vaccine and will be making the Pfizer* and BioNTech* vaccine available to the most vulnerable as early as this month.
We believe the development of a safe and effective vaccine will bring forward a potential return to more normal economic activity by around three to six months. In short, as winter restrictions ease and confidence builds that the end of the pandemic is in sight, we believe the world economy could rebound strongly throughout the course of 2021.
What does this mean for stock markets?
With ultra-low interest rates and governments willing to inject more cash into pandemic-stricken economies where necessary, we believe such a favourable backdrop means 2021 could be a good year for stock markets. In fact, we wouldn’t be surprised to see double-digit returns. That said, we are not the only ones to adopt this view. While at some point during 2021 we believe there will setbacks in stock markets, for now we see a continuation of the more optimistic tone adopted by investors.
What does this mean for government bonds?
If there is one thing government bonds (effectively IOUs for which the lender receives a fixed amount of interest over a period of time) don’t like it’s inflation. This is because rising prices typically erode the fixed amount of income which government bond holders receive.
That said, we don’t believe inflation will be a problem in 2021, given unemployment is likely to rise further and prices of general goods on the high street kept low in order to tempt shoppers.
Nevertheless, we are mindful of the fact that returns for government bond holders in such a low interest-rate environment are not as attractive as they have been historically.
So, while we look forward to a post-pandemic world, we are still living with coronavirus and the dramatic steps taken to contain it. Against such as backdrop we would expect governments, worldwide, to contemplate further measures of help – even as the cost of such measures continues to rise.
Despite these challenges, we see next year as a time for healing – for the economy, environment and society – and one in which we, as a company, believe we can play an important role on your behalf by investing responsibly.
Remember, the value of any investment is not guaranteed. The value of investments and any income received from can go down as well as up and you may not get back as much as you had originally invested.
*For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.
There is no guarantee that any forecasts made will come to pass.