The newly released Standard Chartered Bank market outlook indicates that the rapid development of COVID-19 vaccines suggests 2021 is likely to be a better year than 2020, from both humanitarian and financial market perspectives.
The outbreak of the Covid-19 has proven that 2020 has been an unusual year in many ways. Investing in 2020 was defined by the rapid spread of the COVID-19 pandemic, its resulting negative impact on growth and the subsequent policy response.
However, a spate of positive reports on potential COVID-19 vaccines, some of which are now in the process of being approved, mean markets are already starting to look ahead to a post-COVID-19 environment.
Vaccine distribution, fiscal and monetary policy support, bond yields, the US Dollar and the value versus growth debate are five factors which are likely to define financial markets in 2021.
The Bank expects those to benefit equities, credit and multi-asset income strategies, ‘vaccinating’ them against optically elevated valuations. It also expects most major equity markets to deliver strong returns. Asia USD, Emerging Market bonds (both USD and local currency) and Developed Market High Yield bonds are attractive and USD to weaken.
According to the Market Outlook, Investors are likely to become increasingly innovative when it comes to searching for yield and therefore diversified multi-asset income allocation is likely to perform well.
Steve Brice, Chief Investment Officer at Standard Chartered Wealth Management explained: “On balance, we believe these factors are likely to be supportive of risk assets through 2021, possibly with a disproportionate dependency on effective vaccine distribution.”
“We doubt everything will go smoothly, we see positive development on most fronts, which should be supportive for asset class returns in 2021. The increase in excess capacity in the global economy means central banks are likely to remain focused on supporting growth, which means the equity bull market is likely to continue through 2021 and beyond.” he said
“In our assessment, a post-COVID-19 world is likely to be bullish for risky assets in 2021. This is reflected in our preference for equities and credit over cash and bonds. An end to ‘manmade’ restrictions on economic activity raises the prospect of a return to pre-COVID-19 activity levels once the vaccination programme is widespread. Continued ultra-supportive monetary and fiscal policies should help accelerate this process,” he said.