What The World’s Top Investment Advisors Are Saying About 2021

“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”

Forecasting could not be summed up in a better fashion than these words of Peter Drucker. However, as 2021 dawns, we’re bringing you just that, because we do think it’s important to keep an eye on the views of some of the best brain trusts on key aspects. There are some common points among some global brain trusts, most noticeably on how Covid-19 is still an important risk, but its influence on investment portfolios will likely diminish through 2021. The other point on which there seems to be a consensus is that while the vaccine won’t be a “silver bullet” in 2021, it may not be a prerequisite for economic output to surpass pre-pandemic levels in certain sectors and regions. But for the world at large, the arrival of vaccines will be a big sentiment booster. Views on other key monitorables are varied and the assessment of the impact is different.

1. Are Equities The Asset Class To Bet On?

Blackrock Investment Institute

“Higher inflation—without the typical rise in nominal bond yields to have very different market implications than in the past. Previous episodes of rising inflation were costly for investors, leading to higher interest rates that pressured valuations across asset classes via rising discount rates.

Yet the policy revolution means any rise in inflation from today’s levels will be better for risk assets than in past episodes.”

JPMorgan Private Bank

“Equity valuations are high, but we believe high valuations are deserved. They may even be the new normal as long as global central banks stay accommodative and long-term interest rates remain near secular lows. We think both are good bets over the medium term. We believe stocks are likely to generally outperform fixed income and cash in 2021.”

2. Can Inflation Make A Comeback In The West?

ING

“One increasingly plausible scenario is that inflation expectations start to rise, and the yield curve steepens more sharply as market pricing for U.S. Federal Reserve interest rate increases are brought forward. A global recovery may put upward pressure on fuel prices, adding to the sense that inflation will move higher.”

JPMorgan Private Bank

“We expect inflation to rise modestly over the next 12 to 18 months to just below 2% in the United States and around 1% in Europe, right where it was for most of the last cycle. This means that policy rates will remain anchored, and investors should be wary of holding excess cash.”

Blackrock Investment Institute

“Production costs look set to rise on the rewiring of global supply chains, while we see scope for companies to exert their pricing power to protect profit margins.”

3. Does Trump Leaving Alter The Trade War?

Blackrock Investment Institute

“Strategic U.S.-China rivalry looks here to stay, with competition and bifurcation in the tech sector at its core. We are likely to see an increased emphasis in both countries on seeking self-sufficiency in critical industries of the future.”

ING

“Despite the election of a new president, U.S.-China trade relations are unlikely to experience much of an improvement after a tumultuous few years of tit-for-tat tariff hikes.”

4. Will The U.S. Dollar Weaken?

Merrill

“There is a general sense that the era of a strong dollar is coming to an end, but the resilience of the U.S. economy means that caution persists on betting against the greenback. While a synchronized global expansion likely supports diversification away from the dollar, the magnetism of dollar-based assets should remain potent enough to limit greenback discoloration.”

JPMorgan Private Bank

“The dollar will likely weaken modestly as the global recovery proceeds. Investors should keep an eye on currency exposures and consider beneficiaries of a weakening dollar, such as emerging markets.”

5. How Will Emerging Markets Perform?

Blackrock Investment Institute

“The policy revolution implies that it will remain in place for longer–even as inflation starts to rise. We believe this should underpin investment flows into EMs, drawn by the allure of coupon income in a yield-starved world. EMs also stand to benefit from a cyclical global uptick in 2021–and more predictable U.S. trade policy under the Biden administration. These factors support our tactical overweight in EM equities.”

JPMorgan Private Bank

“A weaker dollar also leads to easier financial conditions for many emerging market countries, as well as companies that earn revenue in local currency but pay debt service in dollars. This dynamic would also help support the recovery in emerging markets, and makes us more positive on equities in the region.”

6. What To Bet On?

Blackrock Investment Institute

“We like U.S. equities, Asia ex-Japan and tech companies tied to structural growth trends. These exposures have a quality bias–and we see them as resilient to potentially volatile markets in the first quarter, while benefiting from long-term technological trends.”

Morgan Stanley (Global And India)

“Globally, we see buying opportunities in banks as they benefit immensely from reopenings as vaccines are distributed through 2021. We see ways to play in almost every geography, and are most bullish on U.S. Large Cap Banks & Consumer Finance, Europe Banks and China Financials. Though banks (Bankex) have outperformed the broader market (Sensex) in recent months, valuations at around long term mean levels are still attractive and we expect significant upside for large private banks/SBI.”

Credit Suisse (On India)

“India market upside may only come from upgrades to FY23E EPS (currently +21% YoY), and better medium-term growth prospects. While index EPS tends to fall 10-35% from where it starts, the cuts are driven mostly by banks and consumer discretionary: on both we see low risk of large downgrades. As the relative P/B of industrials is at record lows, and prospects are improving, we go OVERWEIGHT industrials (L&T, ABB) in our 30-stock model portfolio, taking weights from energy (cut PLNG) and I.T.”

Goldman Sachs (On India)

“Stay overweight infotech, upgrade private banks and domestic cyclicals like autos and materials to overweight; Downgrade pharma to market weight and defensives to underweight.”