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5 Key investment themes for 2021

From an investment perspective, 2020 has proved to be one of the most volatile years on record.

COVID-19 and the US Election have seen markets facing some of the most uncertain conditions since the Great Depression in the 1930’s. But where do we go from here? Charlie Buxton, our Portfolio Manager, explores some of the key considerations for investors for 2021 and beyond.

DO STOCK MARKET VALUATIONS REFLECT THE REAL ECONOMY?

To a certain extent, stock markets have done well to recover from the spring. Yet data remains weak and it’s clear that policymaker support has been a key driver in supporting asset prices. In the last few weeks the positive announcements about vaccines have also bought a renewed sense of optimism which should start to help longer-term projections. As vaccines begin to roll out, a return to normality should follow, but it remains to be seen whether this prevails in terms of economic activity.

WHAT WILL A BIDEN PRESIDENCY AND BREXIT MEAN FOR GLOBAL INVESTORS?

Although a Biden presidency is welcome news for markets, a likely split Congress will mean that the effectiveness of the administration could be somewhat limited. Biden’s tougher stance on Covid-19 may result in national lockdowns, although state governors are already beginning to take their own decisions as cases and fatalities continue to rise across the US. From a policy perspective, it’s likely that there will be tougher regulation on big tech, and a shift in energy policy, both of which will play their part on the global stage. Brexit negotiations continue to rumble along, and it’s clear that if a deal between the UK and EU is reached, this should be a boost for UK assets. Trade will be key but Covid-19 may also create something of a refocus on supply-chain links. It’s also worth bearing in mind how the German elections later in the year will impact current relationships.

IS CHINA BECOMING AN INCREASINGLY ATTRACTIVE PLACE TO INVEST?

China is beginning to open its markets up to foreign capital, and with an earlier recovery from Covid-19 than other economies there may be worthwhile investment opportunities. China’s young workforce and strong domestic demand could also provide good stimulus and an attractive option for investors.

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HOW MUCH OF A FOCUS WILL ESG INVESTING CONTINUE TO HAVE?

ESG investment has grown in popularity over recent years, and 2020 has proved only to expedite this trend. Both Covid-19 and the wildfires in Australia have resulted in strong inflows into ESG funds, and this is set only to grow further, particularly with a Biden led White House extremely likely to re-join the Paris Climate Accord.

HAS EXTRAORDINARY MONETARY POLICY NOW JUST BECOME ORDINARY?

2020 has seen record amounts of stimulus by central banks. It’s yet to be seen whether further intervention will continue to have the same impact, and it’s worth bearing in mind that this strategy could just be building up risk as investors begin to seek yield from alternative assets. Active managers have been able to rotate between sectors, but it’s unclear whether good performance is the result of strong corporate strategy, or powerful policymaker support.

So what has 2020 taught us? It’s a challenging picture, and we certainly aren’t out of the woods yet, with lots of issues still unclear. It’ll be interesting to watch how relations between US and China under Mr Biden play out, and of course the success of a vaccine – both in terms of distribution and prevention rate – will be crucial. Working from home is certainly a more popular trend, boosting stay-at-home stocks, although high valuations in this sector do make them vulnerable. But a sense of optimism is developing; 2021 should be well placed for a focus on recovery as economies begin to emerge from lockdown.

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