he supportive nature of governments and central banks in aiding recovery from the coronavirus crisis provide a good backdrop for ‘risk-on’ assets moving into 2021, an expert has claimed.
According to Darius McDermott, managing director of FundCalibre, the outlook for investments was “broadly positive” for the coming year.
He said: “We have more than one vaccine in the offing, Brexit will be completed one way or another and we have a US president who is likely to be less unsettling.
“Yes, we have mountains of debt, a global recession and we’re bound to have hiccups along the way, but some of the uncertainty has been removed.”
Mr McDermott said the world “knew what needed to be done” to enable a recovery, and that both governments and central banks were being “supportive”.
He added: “To me, this means 2021 should be good for risk-on assets – in both equity and bond markets.”
In terms of equity markets, Mr McDermott said this meant investors should opt for emerging markets over developed sectors.
He said: “I think the US dollar will remain weaker for some time. This will benefit Asia and broader emerging markets.”
Asia has performed well amid the crisis as some countries have tackled the pandemic effectively, and the region has struck a new inter-regional trade agreement.
On top of this, calmer relations between the US and China will be a good move for most emerging markets.
Mr McDermott said: “Developed markets should also be positive but not to the same extent as we have seen in recent years.
“The one exception could be the UK - if we get a positive Brexit outcome it has a lot of catching up to do with its global peers.”
Investors were also urged to choose smaller companies rather than large caps.
According to Mr McDermott, larger companies have been “outperforming” of late, primarily helped by the big technology names.
He said: “Smaller companies, which have paid the price of investor uncertainty in 2020, have relatively attractive valuations and should do well going into a recovery.”
Attractive valuations would also play a part in any rotation to value seen off the back of a global recovery, and Mr McDermott said investors should not “write off” such value strategies completely.
Other areas tipped to prosper in 2021 included commodities and infrastructure, instead of big tech, and corporate bonds rather than their government counterpart.
Mr McDermott said: “I don’t expect the same dominance [from big tech] as was shown in 2020. Instead, commodities and infrastructure look interesting.
“Both should benefit from economic recovery. Metals will be key, especially as the push for electrification and renewable energy gathers pace.”
On bonds, Mr McDermott noted that government bonds in the developed world were offering “little yield and little capital upside”. Investment grade and high yield bonds, which offer better yields and should do better in a recovery environment, were a smarter choice, he said.
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