Asset managers and private bankers are expressing cautious optimism for growth prospects in 2021, although the global economy is still weak.
Investment opportunities are expected to favor assets with leave-your-home theme, meaning products and services that are needed outside the house, such as energy, travel, consumer discretionary, financials, etc.
Investment opportunities in assets with a stay-at-home theme, or products and services needed for working at home, which performed well during the pandemic, are expected to slow down as markets recover in 2021.
There is a consensus that with effective vaccine distribution, it is reasonable to expect the economy to fully reopen by the second half of 2021. This is consistent with the most recent International Monetary Fund (IMF) outlook which projects a 5.4% GDP growth rebound in 2021 following the decline of 4.9% in 2020.
The pace of recovery will, however, depend on how quickly and effectively the vaccines are rolled out all over the world.
“We expect five billion doses to be delivered in 2021 and there’s only about six billion people on earth. There will be additional vaccines to be approved by various local authorities. In addition, we could see medical treatments for this disease to be improved, to become cheaper, and to be more widely available. So that even if you don’t take the vaccine, you should feel more comfortable that when you get sick you can find treatment,” says Ken Pang, head of Asia investment strategy at Citi Private Bank.
Additional stimulus efforts, vaccine development and distribution, and new political agendas set the foundation for a likely more predictable path to recovery in 2021.
Key policies
“In the US, [President-elect Joe] Biden’s key policies align with many disruptive themes that Covid-19 accelerated, while providing fresh tailwinds to areas like infrastructure development and climate mitigation,” says Jon Maier, chief investment officer at Global X ETFs.
“In Asia, we expect China to lead robust growth in Asia in 2021. Apart from its domestic containment of the virus, we believe efforts to combat the virus outside the country will drive further growth in early 2021.”
Many markets import personal protective equipment (PPE) from China and the country provides the world with approximately 80% of active pharmaceutical ingredients, which are likely to be used in certain vaccines and treatments, benefiting the country’s burgeoning healthcare sector.
Pang also cites data indicating a rebound in traveler traffic in China following news of the vaccine’s discovery. “Before the pandemic, China had about 55 million monthly civil aviation passengers. During the pandemic it had fallen to below 10 million a month. Because of more effective management of the pandemic, passenger traffic has rebounded significantly. We’re now back to 50 million a month. This is almost entirely domestic. So this is about 90% of normal capacity.”
He expects sectors that did not perform well in 2020 because of the pandemic to bounce back in 2021 based on the “mean reversion” strategy, which basically means buying a stock after it has had an unusually large fall in price.
The stocks that Pang expects to benefit from this strategy are those in the “leave-your-home” sectors including energy or oil, transportation, travel and leisure, consumer discretionaries, consumer services, and financials. “These industries are cyclical and they were the biggest beneficiaries that we saw since the vaccine rally in November 2020,” he says.
Stocks in the stay-at-home sector including e-commerce, office supplies, medical equipment and supplies, gloves, mask, etc., performed very well, rising 40-50% in 2020. But since November 2020 they have stagnated when the first vaccines were approved.
“In the US, adequate vaccine distribution and additional stimulus efforts could lead to a robust recovery after mid-year, and ultimately drive corporate profits closer to 2019 levels. Value and small-cap stocks have a good chance to outperform in the short term under this scenario, as a broad economic recovery should favour stocks that have not fared well during the pandemic,” says Maier.
