(ATF) As we near the end of a remarkable year, we bring to you a collection of expert opinions as to what the year ahead holds for economies and markets. What will be the industries that will drive growth in 2021? How will markets fare in the coming new year? And what investment themes will rule markets?
Here’s a compilation of 2021 outlooks, investments themes, and country-specific trends by fund managers, economists and analysts from around the world:
Nomura market research: Asia in a sweet spot
Nomura’s 2021 outlook for Asia is positive, projecting a GDP growth rebound to 8.1% year-on-year, above consensus (7.1%), and a sharp reversal from 2020 (-1.1%). China and India are expected to lead growth on the continent.
Some of the key themes for Asia in 2021 will be:
- Wide distribution of vaccines is still a few quarters away, and DM growth is likely to sequentially soften in Q4 and Q1 2021.
- The region is poised for a sharp growth cycle acceleration, aided by the wide distribution of vaccines, a strong global growth rebound, reduced uncertainty, a strong tech cycle, a resilient China, inventory restocking and the lagged effects of easier financial conditions.
- Central banks are likely to hesitate to unwind their easy policies in view of vaccine uncertainty in H1, negative output gaps, the risk of scarring effects, subdued inflation and no changes to Fed policy.
- Asia’s current account surpluses should narrow in 2021 as domestic demand recovers, but the problem of plenty will continue in the first half, due to robust net capital inflows
Saxo Group: Outrageous predictions
According to Steen Jakobsen, CIO of Saxo Group, China’s new digital currency is likely to drive tectonic shifts in capital flows. “As a government-sponsored centralised currency, it will still be viewed as “fiat currency” and won’t have the appeal of decentralised blockchain-based currencies like Bitcoin; but from China’s perspective this is a feature of the digital Yuan and not a bug, as it allows negative rates for 'cash', and nominal GDP targeting is far easier to achieve as well,” Jakobsen writes.
2021 will also see silver prices rising due to its use as a precious and industrial metal. “2021 brings the usual suspects that power silver higher on its hard asset/precious metal side as the US dollar weakens, and as investors are faced with the harsh reality of no relief in sight from negative real interest rates,” writes Ole Hansen, Head of Community Strategy at Saxo Group.
Morgan Stanley: A year full of surprises
Morgan Stanley’s outlook says we are in for many surprises in 2021. They list out 10 scenarios that would surprise consensus and thus could move global macro markets in meaningful ways.
- DM liquidity avoids EM and drives a DM asset bubble
- A divided US government agrees on an infrastructure package
- ECB strategy review advises greater housing weight in HICP
- BoJ rate cut once again on the table
- EUR/USD positive correlation with equities reverses
- Immigration causes the northern lights to shine brightest
- Long CNH/JPY is derailed by JPY becoming an asset currency
- UK RPI legal challenges result in compensation
- LIBOR-OIS dips negative
- “Japanification" of US interest rate volatility
Franklin Templeton Specialist Investment Managers
To determine where bond markets will head to in 2021, Francis A Scotland, director of Global Macro Research, says we need to look at three major developments:
First, the remaining influence of COVID-19 on the global economy. The pandemic will impact economic activity through the first half of the year with a significant shift in the second half, while this impact will not be linear across all economies.
Second, figuring out the glide path for global bond markets involves expanding the uncertainty analysis to also include “political and economic” uncertainty. Unlike President Trump, President-elect Biden is not known to “weaponise” uncertainty, so overall political volatility is expected to diminish in 2021.
Third, the global monetary policy front will see less uncertainty, as inflation should not be a significant issue in 2021. The bond market volatility will also remain low, given the lower uncertainty in medical, political, economic and monetary policy.
DBS Research Group
The group’s outlook points at a rebound in the Indian economy, “buoyed by strong capital inflows, improved external balances, and some structural reforms”. Availability of the vaccine will be a key catalyst in economic growth, but per capita GDP is unlikely to go back to pre-pandemic levels before 2022.
Consumption is likely to improve as businesses come back online, resulting in a lift to income and employment prospects, as well as a larger shift from unorganised to organised sector, with any acceleration in vaccine availability to be an additional tailwind.
BNP Paribas AM
BNP Paribas AM’s puts the spotlight on China. Investment themes include both a sustainable angle and a focus on long-running trends like healthcare improvements, disruptive technologies and innovation.
BNPP AM’s outlook says that a sharp global contraction in 2020 will be followed by a rebound in growth in 2021. While Covid vaccines will be available to most countries, many will initially have to learn to live with the virus since lockdowns aren’t a sustainable solution.
Pictet Wealth Management
César Pérez Ruiz, head of Investments & Chief Investment Officer at Pictet Wealth Management, says that 2021 will be the “year of the phoenix, with a strong rebound in global GDP and corporate earnings in 2021, thanks to the unrolling of vaccines and substantial policy support. Anything connected to the ‘green’ economy will benefit greatly from recovery programmes.”
Some of the investment themes mapped out a year ago have gained extra relevance because of the events of 2020. These include active management, the attraction of real assets, ESG investing and treating volatility as an asset class in its own right.
Eastspring Investments: The key sectors
China’s semiconductor and New Energy Vehicle (NEV) industries, plus software and automation players are expected to continue delivering strong earnings growth over the next year, according to Eastspring China’s CIO of Equities Michelle Qi.
Meanwhile, Tan Yong Han, from Eastspring Singapore’s Fixed Income team, sees compelling ESG opportunities in Asia as new investments in renewables are expected to reach $250 billion by 2025.
HSBC Global Research: Healthy growth in China
Looking at China’s recovery post the Covid-19 pandemic, HSBC Global Research has raised the 2021 growth forecast from 7.5% to 8.5%.
Five key themes are expected to lead China’s growth in the new year:
# Private consumption is expected to catch up;
# Export strength is set to continue;
# There will be more investment in the manufacturing sector;
# Disinflation still a bigger risk than inflation;
# And growth in total social financing may moderate amid less government borrowing.
KPMG: China to see big growth
While Covid-19 significantly affected economies in 2020, two major upsides for China were the increase in exports and FDI.
In its report 10 Macroeconomic Trends in 2021, KPMG highlights 10 macroeconomic trends that will drive China’s growth in 2021. KPMG forecasts that investment in manufacturing will keep on growing and service and consumption sectors are also expected to see a boost in 2021.
Exports, which was a major upside for Chinese economy in 2020 will remain robust, with the overall growth rate staying high in 1H and moderate in 2H.
A huge and rapidly growing domestic market, broad industrial base, high-quality infrastructure, and continuous opening-up policies all make China an attractive destination for foreign investment.
2021 marks the beginning of the 14th Five-Year Plan. Kevin Kang, chief economist at KPMG China says: “The 14th Five-Year Plan for 2021-25 carries particular importance, as it will be the first five-year plan after China has attained its first centennial goal of ‘building a moderately prosperous society in all respects’ and started driving towards its second centennial goal.
"Against this background, we expect China’s economy to continue to recover and its GDP growth to reach 8.8% in 2021.”