We are optimistic about the outlook for equities.
This is due to the ongoing monetary policies support leading to low rates for an extended period, the sizeable fiscal stimuli being deployed across the globe and the normalisation of economies that should occur once mass vaccinations are under way.
It is going to be a year of certainty in recovery but lack of certainty in magnitude of recovery.
The recovery from the pandemic is likely to bring a sizeable rebound in economic growth, and in corporate earnings.
In terms of valuation, US equities are appearing more stretched versus historic average, whilst European and Asian equities still offer some attraction in our view.
The low yield environment will remain challenging for investors seeking yield next year, which makes it supportive for equities in general, given their still very attractive earnings yield compared to bond yields.
We believe that there will be an interesting debate around inflation and expectations of pick up in inflationary pressures next year. From our point of view, we don’t see any meaningful and sustained pick-up in inflation, given the many underlying deflationary undercurrents, brought by disruptive trends remaining omnipresent, and the underlying weak labour market dynamics brought up by the pandemic crisis.
The question in 2021, if we see a pick up in inflation, is how long will interest rate expectations remain subdued, or will anticipations of rising rates bring some downside risk to asset classes, notably equities.
In terms of geopolitical risks, the Biden presidency will bring a constructive rather than destructive approach to diplomatic matters, which is likely to bring less trade uncertainty generally and therefore less volatility in markets.
An additional risk to watch out for is the formation of excesses in asset classes - the low rates environment, and the plentiful access to cheap funding is pushing investors into riskier asset classes in search for yield. This has the potential to create some localised market bubbles which could bring some risks to investors further down the line.
Furthermore, an additional risk is one of ongoing increase in indebtedness, due to the fiscal spending programs announced. Higher debt levels tend to be followed by periods of lower growth and higher tax - whilst not necessarily a consideration for 2021, investors should be mindful of this risk in the mid-term.
Focus on ESG and sustainability
Another important aspect: financial markets, investors, asset allocators, corporates and all economic agents will continue to increase their focus on ESG, and their preference for more sustainable approaches to investment, production and consumption - all of which should be positive both for stewardship in general, responsible corporate citizenships, and for tackling climate change in the long term.
In terms of thematics, for us the structural growth opportunities related to increased infrastructure spend will be an important driver not only in 2021 but over the next decade and beyond. This increased infrastructure spend is likely to be channelled into six areas: (i) healthcare infrastructure, (ii) greener buildings, (iii) electric transportation, (iv) renewable energy, (v) 5G telephony and (vi) high speed railways.
These spending areas all sit within our three mega-trends of Demographic Changes, Future of Technology and Resource Scarcity.
Finally, as investors, we want to continue to focus on companies with sustainable business models, solid balance sheets, structural growth opportunities and generating high returns - and that have low disruption risk and strong pricing power, in an environment that remains disruptive, and where there is a lack of meaningful inflationary pressures.
* Source: JPM Research
About the trust
The trust aims to achieve long-term returns in excess of the total return from the MSCI All Country World index.
Trust performance and how the portfolio breaks down.
How to invest
Trade online, manage your portfolio and buy UK listed shares.
Regulatory information and risk warnings
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’). It does not constitute investment advice.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.
Past performance is not a guide to future returns. The return may increase or decrease as a result of fluctuations in the markets, in currency and/or in the portfolio.
Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The analysis of Environmental, Social and Governance (ESG) factors form an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes.
The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds.
Shares in investment trusts are traded on a stock market and the share price will fluctuate in accordance with supply and demand and may not reflect the value of underlying net asset value of the shares. The majority of charges will be deducted from the capital of the company. This will constrain capital growth of the company in order to maintain the income streams.