‘It’s a good time to be a bit more bullish again,’ says Jeroen Blokland, head of Robeco’s multi-asset team. Especially for equities and commodities, the asset manager is counting on double-digit returns.
Robeco anticipates returns of 10-16% for equities and 8-12% for commodities. Blokland expects that by the end of 2021 GDP levels will be back to pre-Covid levels, including in Europe. This means that the economic cycle would shift from recession to recovery mode. We only require earnings per share to grow by 20% in order to get there, says Blokland. This is also the main reason for the optimistic returns he expects for 2021.
In its base scenario, Robeco assumes that all sectors that have been hit hard by the crisis will rebound. ‘This also applies to cyclical equities outside the United States’, Blokland notes. Moreover, he expects these stocks to outperform US stocks in the coming year.
Commodities regain balance
Raw materials have been on Blokland’s radar for a long time and he expects the balance between supply and demand to recover further in the new year. ‘The demand for raw materials is increasing, mainly due to China, which is leading to price increases.’ Robeco also expects OPEC+ to slowly increase production in line with the return of demand, which could lead to a sharp rise in the price of oil. Precious metals will experience slightly less tailwind in 2021, however.
The table below gives an overview of the expected returns per asset category. In line with the asset manager’s move towards more risky assets in the second half of the year, its vision for 2021 is optimistic.
The exception to the rule is Robeco’s outlook for government bonds, which the asset manager believes will face a bad year. ‘Although bond yields should be somewhat higher in the new year, the upside potential is limited by central bank policies.’ Blokland expects the current policy to continue in the coming period. ‘As a result, the yield curve will steepen somewhat, but not by much.’
Tackling the trilemma
Blokland’s predictions revolve, however, around the development of a vaccine. This is essential for solving the so-called trilemma. By this, Blokland is referring to the tension between public health, personal freedom and the economy. The concept was first mentioned by Allianz top advisor Mohamed el-Erian: ‘The outbreak of Covid-19 confronts policymakers with a trilemma: an acceptable balance between public health, the economy and personal freedom. It is precisely this trade-off and its relaxation that will determine economic, market and social conditions in 2021,’ he said.
In its baseline scenario, Robeco assumes that several vaccines will be approved in the coming year, which would be a stepping stone to a new normal. ‘It is difficult to predict what that will look like, says Blokland, but it is certain that it will be different from the old normal.’