Traditionally, the first outlooks for the coming year trickle in from September onwards. With sometimes a quarter of a year still to go, strategists start relating their vision of the economic and financial themes that await investors in the next calendar year. The big question is which investors have actually hit the mark in their outlook for 2021. The reckoning.
Medical outlook
Although many might be familiar with the saying “cobbler, stick to your last”, many strategists, economists and investors turned out to be medical experts in 2020. Much of the outlooks for the next year were about the coronavirus and the question – and the answer – of how the virus and vaccination would develop. The reason was, as Vanguard put it in late 2020, that investment performance in 2021 would be highly dependent on health outcomes.
Vanguard’s base case at the time was that an effective combination of vaccines and therapeutic treatments would eventually come to market in 2021. “This will gradually ease government restrictions on social interaction and reduce consumer economic hesitancy. But the recovery is likely to be uneven and varied across sectors and countries, even with an effective vaccine in sight.”
In addition to the arrival of a Covid-19 vaccine, Robeco was counting on “improved testing, tracking and treatments to address the policy trilemma.” The asset manager, who assumed “a few” vaccines would become available in the course of 2021, did point out the logistical challenges of distributing the vaccine to the population.
Those supply problems presented themselves at AstraZeneca, which quickly disrupted vaccination campaigns in the European Union. But in the end, Luxembourg’s health ministry, as in other EU countries, offered everyone aged 12 years and older Covid-19 vaccinations in 2021.
Third wave
The vaccination campaign could not prevent public health authorities, after a first and second wave, having to report in March 2021 that a third wave of the coronavirus was visible. Sandra Phlippen of ABN Amro had already said during the Investment Outlook of Fondsnieuws (Investment Officer Luxembourg’s Dutch sister publication) in November 2020 that she did not rule out a third wave, although she envisaged it would be less drastic than the first two. “We do expect an increase in restrictions, but it will look very different from the current one,” the economist said at the time. At the same Investment Outlook, Gerwin Wijnia, chief investment officer at InsingerGilissen, said he did not expect a third wave.
Economic outlook
Phlippen of ABN Amro predicted a 2.7 per cent economic contraction in the fourth quarter of 2020 and said it would continue to “muddle along” in the first half of 2021.
Wijnia of InsingerGilissen predicted 4.5 percent growth in Europe and more than 5 percent worldwide in 2021. Bob Homan, head of the ING Investment Office, also counted on 5 percent global economic growth. Taoufik Boussebaa, lead strategy & communications at Rabobank Netherlands, was slightly below with 4 percent.
According to the most recent estimate by the Luxembourg national statistics agency STATEC, eurozone growth for 2021 will be 5 per cent and for the whole world 6 per cent. For China, the OECD in its most recent estimates was a growth of 8.1 percent. Vanguard was quite close with an estimate of 9 per cent. In the US, the fund house expected a growth of 5 percent, as in the eurozone.
Inflation
As for inflation, Vanguard counted on a cyclical rebound in consumer inflation to rates closer to 2 percent, although the fund house also warned against a possible “inflation shock”.
In November 2020, AllianceBernstein counted on a 2 per cent inflation rate in the US in 2021, 0.7 per cent in the eurozone and 2.2 per cent globally. “The pieces are finally falling into place for the shift to a higher inflation regime,” the fund house argued. “But with the US putting fiscal policy on hold, output gaps increasing and inflation expectations dormant, it is difficult to predict that this will happen in 2021.”
Amundi Asset Management expected low growth, low inflation and low interest rates in 2021. “Unconventional monetary policy will persist,” the asset manager said at the time.
Then the outcome, as we all know, was very different. According to figures from the US Department of Labour, inflation in the US rose by 6.8% in the 12 months to November. Eurozone inflation was 4.1 per cent in October, according to STATEC figures.
Investment outlook
The global equity market is heading for nice double-digit gains in 2021. The MSCI World is set for a yearly gain of some 17 per cent. European equities, included in the pan-European Stoxx 600, are up about one percent.
Robeco had already anticipated that 2021 would be a good year for risky assets, with equities achieving above-average returns in the fund house’s base scenario. DWS also wrote before the new stock market year actually began that it had an optimistic view of equities. Moreover, the then recent rally in value stocks would be short-lived, according to the asset manager.
Indeed, MSCI World Value is in a worse position than MSCI World, according to the latest figures from the index provider (30 November, 2021). The value variant is more than 2 percentage points behind.
Actiam was slightly less correct, saying that investors would face more volatility in the first half of the year in 2021. The asset manager did prefer European equities to US equities, because of the relatively high valuations in the US and the leading position of European companies in terms of ESG.
Vanguard was wrong on equities, betting on a “modest” global equity risk premium. The asset manager expected the total return on equities to be 3 to 5 percentage points higher than the return on bonds.
High yield
Amundi foresaw a rotation from high yield to equities and Robeco argued that this category would be slightly less attractive than equities from a risk-return perspective. Columbia Threadneedle wrote it liked “some risk in credit” but thought investment grade would ultimately be a better home for it than high yield.
The effective yield of the widely used ICE BofA Glb High Yield Constrained Index stood at around 4.5 per cent on Tuesday.