What is the investor outlook for 2021?
By: Dr Samuel Barbosa Da Cunha
Tags: Samuel Barbos, Predictions, 2021, Investment, Economic Recovery

As we come to the end of a turbulent year, experts say that investor prospects for 2021 may be more optimistic than previously thought.

Can we really expect relatively normal investor conditions in 2021? According to Morgan Stanley Research it’s looking increasingly likely.

This doesn’t mean that the economic and social impact of the virus will disappear as we transition into next year, but if the V-shaped economic recover can be sustained, it’s looking optimistic.

Why the economic recovery could be sustainable?

The strategic experts at Morgan Stanley Research believe that there is a good possibility of the global economic recovery remaining sustainable. Furthermore, this means that recovery will be relatively inline with past economic bounce backs. Much of this is based on the likelihood of sustaining the V-shaped recovery that began in May this year.

A global GDP growth of 6.4% is predicted for 2021, led by emerging markets and the eventual reopening of the US and European economies. This macro-economic approach of economic analysis deviates from other forecasts but is just as likely.

As of mid-December 2020, it’s hard to imagine the world returning to normality. At the moment cases are rising, particularly in Europe and the US and deaths are also rising. However, when we consider the unprecedented chaos that the pandemic has caused, the global economy has proven to be more resilient than might have been expected.

Economic recovery was sustainable after the 2008 crash

While the global GDP dropped sharply during the first phase of the pandemic in Q1 2020, recovery began towards the end of the second quarter of the year. This recovery is proving sustainable and is on target to actually beat the pre-pandemic GDP by the start of 2021. This logically means we can expect a stronger economic recovery as we move through Q1 of next year.

A wider consensus is that global economic growth will be more like 5.4%, however consumers continue to drive the recovery were seeing. The rise of investment shows the private sector’s tolerance to these changeable conditions and will be the main driver of the global economic recovery.

It’s also important to note that we have seen this kind of economic recovery before. After the 2008 global financial crash, the market began to pick up. By 2010, investors were still cautious and untrusting of the recovery, and whether it would be sustainable. We know now, of course, that this marked the start of a long period of stability and economic growth.

Markets are still dealing with short-term uncertainty, of course. We have yet to see how the second and third waves of COVID-19 impact the world. We are also yet to find out when the vaccination rollout will begin or end or even if there will be enough. Geopolitical events such as the US Senate runoffs in January 2021 also affect the outlook.

Investor predictions for 2021

Depending on the trajectory of the economic recovery, we can expect to see the following for investors in 2021.

· A rise in global earnings

Experts forecast an upward surge in global earnings per share of up to 30% in 2021, with this most likely to happen in developed markets.

· Possibly uneven valuations

The market will enter 2021 while rallying, strategic global equity valuations look reasonable. Due to the geopolitical uncertainty described above, and the pandemic dampening investor enthusiasm, we can assume that the forecasted growth hasn’t been included in the equity markets.

· Investors should follow the playbook for early cycle recovery

If the economic cycle in 2021 continues to be relatively normal, then investors should trust the process. We’ve been here before, and we know that it can end. This means being realistic when buying stocks and waiting for fiscal assistance to stimulate small businesses. This is where economic recovery always begins.

· Europe will begin to recover economically

COVID-19 hit Europe just at the point when the economy was finally recovering after many years of woe. This is likely to mean a strong bounceback next year as the continent gets to grips with the vaccine.

· Other asset classes are more volatile

As we’ve seen, the early-cycle economic trajectory for credit and equities looks to be relatively familiar. However, it’s more complicated for other assets in 2021. While commodity prices do rise when economies begin to recover, it’s much more nuanced for some assets such as oil.

Investors must remain cautious but trust the process of economic recovery. Morgan Stanley’s analysis offers hope that the recovery may well be sustainable and the outlook for investors nowhere near as bleak as other economists have forecast.

My advice is to continue to adjust investor portfolios, and constantly review how valuable your assets will be as the economy recovers. Don’t become complacent because the worst hasn’t yet happened — this could damage the chances of recovery.