Here’s everything Wall Street expects in 2021

Sam Potter, Bloomberg

04 January, 2021, 06:35 pm

Last modified: 04 January, 2021, 08:21 pm

Photo: Bloomberg

After a year that made a mockery of every best-laid investment plan, the prognosticators of Wall Street could be forgiven for greeting 2021 with an abundance of caution.

Instead if there's an oversupply of anything, it's optimism.

Recovery. Revival. Rotation. Reset. These are the words dominating the annual stack of market outlooks from the world's biggest banks and investment firms for the year ahead. Caveats abound, but the consensus is that after the Covid-spurred crash, the vaccine is setting the stage for a new period of economic growth—and rising asset prices.

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Bloomberg News has once again collated and condensed the key calls to present almost 500 of them here by macro theme, asset class and institution.

BASE CASE

Allianz Investment Management

It looks increasingly promising for vaccines and herd immunity to suppress the virus. With the US election resulting in a divided government we anticipate only modest policy changes with the new administration. The Fed is likely to remain accommodative on monetary policy keeping short-term interest rates low throughout 2021. These factors should combine to provide a favorable backdrop for the continued economic recovery and prove supportive for the reflation of growth and risk assets in 2021.

Amundi

The damage to the global economy will last well beyond 2021. Output and personal income losses, the rise of inequality and the disruption in some sectors will be the legacies of the pandemic. Expecting that a vaccine will cause these to dissipate within a few months is too optimistic.

AXA Investment Managers

A broader-based cyclical rally in risk assets should come in the wake of vaccine deployment in 2021.

Bank of America

We look for a rocky start to 2021 as many countries battle Covid outbreaks. However, a combination of fiscal stimulus and wide vaccine distribution should boost growth by mid-year.

Barclays

We remain overweight risk assets over core bonds, as investors look through the near-term drag of the winter Covid surge and focus instead on a resilient global economy and a faster return to normalcy in 2021.

BCA Research

In 2021, stocks will outperform bonds thanks to the global economic recovery, the lack of immediate inflationary pressures and the prospects of a resolution to the pandemic.

BlackRock Investment Institute

The economic restart can re-accelerate significantly in 2021 as pent-up demand is unleashed. We believe markets will likely be quick to price in a full economic restart given the improved visibility on the outlook.

BMO Global Asset Management

We expect ongoing vaccination in the first half of the year to set the stage for a vigorous growth recovery in 2021. The beaten-down services sector should be the principal beneficiary of this return to normal as the in-person economy roars back to life in the post-pandemic world.

BNP Paribas

The likely wide availability of a Covid-19 vaccine underpins our expectation of a strong economic recovery next year following early weakness.

Citi

Vaccines illuminate the path to normalization but one needs to get through a harsh winter first. An economic soft patch is plausible as the result of renewed lockdowns in the near term, but it can be offset by reasonable visibility for meaningful mid-year inoculation trends.

Citi Private Bank

As Covid departs, the new economic cycle that has already begun will accelerate. Investors need to take action to prepare portfolios for a post-Covid world.

Columbia Threadneedle

The strong efficacy of the drugs from Moderna et al would encourage us to believe that the recovery from the pandemic may be quicker in 2021 than we had previously anticipated. That should bring forward the economic recovery by as much as nine months, meaning we see a recovery to pre-pandemic levels by early-2022 or possibly even the end of 2021.

Credit Suisse

Our 2021 forecasts are designed to answer a simple question: what will the future (2022) look like in the future (end of 2021). From this perspective, we are forced to deemphasize the near-term, focusing instead on the return to a more normal world. As we look toward 2022, the virus will be a fading memory, the economy robust, but decelerating, the yield curve steeper and volatility lower, and the rotation into cyclicals largely behind us.

DWS

DWS foresees a 5.2% synchronized rebound in global GDP growth for 2021, as the lifting of Covid-19 restrictions could induce a forceful rebound and fiscal and monetary stimulus kicks in.

Evercore ISI

In 2021, the initial post-Covid recovery will help fuel a rebound in consumer spending and service related industries. If vaccine rollouts go well, the virus is contained and the flood of global fiscal and monetary policy helps drive a resurgence in real growth, investors may see a more traditional market cycle get underway. If however, the recovery stalls in the second half of the year, a return to a post-GFC style market is likely.

Fidelity

2021 is likely to be about capturing relative opportunities as investors price in economic and virus-related developments.

Franklin Templeton

We believe that a durable economic bottom has formed, providing further support for equities, which tend to perform strongly coming out of recessions.

Goldman Sachs

A strong vaccine-led recovery in global growth will provide a large boost to cyclical assets, including commodities, cyclical equity sectors and emerging markets. However, the path may be tricky as the market balances spot growth weakness with a forward outlook that is more supportive.

HSBC Asset Management

We are in the restoration economy phase in which the precise cadence of restoration depends on individual markets, how quickly a vaccine is deployed and policy support. China and the US will remain the growth leaders while Europe is set to lag.

JPMorgan

The year ahead could deliver the strongest growth and the fewest geopolitical shocks in a decade, but still below average returns across many cyclical parts of fixed income, currencies and commodities. The issue is starting valuations that limit either carry, capital gains or both.

JPMorgan Asset Management

Following a winter slowdown, widespread vaccination should allow US growth to surge later in 2021, precipitating a relatively fast rebound from a deep recession. However, the recoveries for GDP, jobs and inflation are on different timetables.

Lombard Odier

The baseline scenario is a vaccine led economic catch-up in 2021. Pre-covid level of output reached in the third quarter of 2021 in the US and the first quarter of 2022 in the euro area. Vaccine and a more pro-trade new US administration are two significant tailwinds.

Mizuho

The global economy is poised to be on a better footing into 2021 as vaccine rollout broadens against a backdrop of abundantly accommodative policy. But the recovery will be neither brisk nor unfettered. The fact is, demand resumption from vaccines will not be instantaneous nor fully restore pre-Covid consumption levels. Instead, a bumpy recovery predicated on vaccine rollout and lingering China risks will result in uneven, initially tentative, pick-up spread over 2021-22.

Morgan Stanley

Rising Covid-19 cases are a risk, but keep the faith. We think this global recovery is sustainable, synchronous and supported by policy, following much of the "normal" post-recession playbook. Overweight equities and credit against cash and government bonds, and sell the dollar. Be patient in commodities.

NatWest

The return of fiscal policy as the main lever for policymaking is what will matter most for markets in the coming years. The post-Covid world will not see a return to fiscal austerity. The political will isn't there.

Neuberger Berman

The coronavirus pandemic caused a deep recession that has set a low base from which to rebound. We now face early-cycle dynamics not seen for a decade: above trend-line GDP and corporate earnings growth, declining unemployment and rock-bottom interest rates. In addition, we see limited drivers of substantial inflation before 2022, and, without significant continuing fiscal stimulus, no clear change in the underlying causes of secular stagnation.

Nikko AM

Global economic growth will surpass consensus, in our view, and while a Biden Administration will cause a bit of market and economic concern in the US, the help of vaccines, continued monetary stimulus, improving global geopolitical conditions, low interest rates and moderate inflation should allow equity markets to perform very well through 2021.

Pictet

Next year should see the global economy recover strongly from the ravages of the pandemic. Expect emerging markets to lead the rebound, propelled by China and supported by a weaker dollar.

Pimco

We expect the early cycle recovery of the global economy to provide a tailwind for risk assets. We favor a moderate risk-on posture in multi-asset portfolios as we expect the global economic recovery to continue in 2021.

Principal Global Investors

Vaccine progress will remain a dominant market narrative through 2021, permitting investors to be more tolerant of the intensifying Covid-19 wave and, in the second half of the year, clearing the path to full economic reopenings.

Robeco

In general, we believe 2021 will be a good year for risky assets, with equities realizing above-average returns in our base case.

Societe Generale

The possibility of higher bond yields and a growth recovery are the key themes that will guide our asset allocation decisions.

TD Securities

Yet another crisis with a further protracted period of even lower rates will force investors to find more opportunities rolling out the risk curve. We look at the potential for increasing returns through anticipating the macro cycle, using cross-currency and EM to pick up yield in foreign bonds, or optimizing a portfolio of spread products.

UBS

2021 will be about going cyclical, small, and global as the sectors and markets most heavily affected by lockdowns start to revive.

Vanguard

Our baseline forecast assumes that an effective combination of vaccine and therapeutic treatments should ultimately emerge to gradually allow an easing of government restrictions on social interaction and a lessening of consumers' economic hesitancy. But the recovery's path is likely to prove uneven and varied across industries and countries.

Wells Fargo

We expect the economic recovery to continue in 2021, which should support an earnings rebound, sending global equity prices to record highs. We favor high quality, like US large- and mid-caps, and increasing exposure to cyclical sectors that can take advantage of the recovery.

GROWTH

Allianz Investment Management

While the economic outlook is fairly bleak for the coming months, we expect the economy will come out of hibernation from the virus as vaccines are distributed and the second half of 2021 should yield a strong rebound for the global economy.

Allianz Investment Management

We see US growth at 3.5% to 4.5%. The progress made towards a viable vaccine combined with the likelihood of additional fiscal stimulus to bridge the economic output gap is setting up the economy for a strong rebound in the second half of 2021. Should an effective vaccine take hold in 2021, we suspect consumers will come out of hibernation and economic activity will re-open across all sectors, providing a strong tailwind for GDP in 2021.

Amundi

We believe old-fashioned geographical diversification will come back into focus, thanks to global trade no longer driving global growth, the repatriation of value chains and the desynchronisation of cycles.

Amundi

In a still highly uncertain virus and economic cycle, the Chinese and Asian economies are emerging as the most resilient, having been able to effectively manage their outbreaks. So far, China has been the only country to recover to its precrisis GDP level. The outlook of EM countries in LatAm should also improve through 2021 as the virus cycle is improving in this area. These trends should support EM regional themes and EM bonds in local currency.

AXA Investment Managers

For the coming year, changing expectations of the shape and strength of the recovery will be important in influencing returns and volatility. What we can count on is that interest rates will remain extremely low, and therefore companies and governments alike will continue to enjoy low-cost funding.

Bank of America

In the US, we think 2021 will be a transition year, moving back to services from goods, to private from public and to in-person from virtual. The scars from Covid will remain. We look for the economy to grow 4.5% in 2021. The first Fed hike is unlikely until the second half of 2024.

Bank of America

The U.K. has a lot to gain from a vaccine given its relatively poor economic performance. We expect a strong growth bounce mid-2021. But Brexit along with relatively large Covid scarring cuts potential growth, so the country may not return to 2019 GDP until 2023.

Bank of America

In EM, we expect consumption to drive India's recovery in 2021. Growth in Korea is expected to rebound to 3.4% after a relatively modest recession in 2020. Vietnam, Malaysia and Singapore likely to outperform Indonesia, the Philippines and Thailand. In emerging EMEA, we forecast regional GDP growth to improve to about 3.5%. We forecast LatAm GDP growth to rebound to 3.8% in 2021 after a decline of 7.4% in 2020.

Bank of America

BofA economists and strategists predict global GDP to surge 5.4% (best since 1973).

Bank of America

After -7% this year, we expect the euro area to grow 3.9% and 2.7% in 2021/22—an incomplete recovery leaving scars and imbalances. The ECB will be moving into yield-curve-control of sorts.

Bank of America

Japanese growth is poised to slow in the near-term due to the Covid-19 third wave. But the recovery has room to run in 2021. Weak inflation means that BOJ policy is frozen for the foreseeable future.

Bank of America

In China, we expect economic activities to normalize further and maintain our GDP growth forecast at 8.5% for 2021. Investment will likely remain strong, along with a full-swing comeback in consumption.

Barclays

We expect the global economy to grow 5.6% in 2021, after contracting 3.6% in 2020. We forecast 4.3%, 4.6% and 8.4%, respectively, next year in the US, Europe and China, as the global economy emerges from Covid's shadow.

BCA Research

At the beginning of 2021, global growth should remain volatile. However, the recovery will ultimately strengthen over the remainder of the year thanks to the rollout of vaccines, the sustained fiscal support across major economies, the continued positive impact of China's economic healing, and the strength of household balance sheets.

BCA Research

The US will grow faster than potential thanks to the policy backdrop. Outside of the US, China's stimulus and an inventory restocking will fuel a continued upswing in the global industrial cycle that will push 2021 GDP growth well above trend. However, at the beginning of the year, we will likely feel the remnants of the lockdowns currently engulfing Western economies.

BlackRock Investment Institute

We are turning more pro-risk tactically in 2021 by adding equities to our overweight in credit as we see the economic restart re-accelerate.

BlackRock Investment Institute

We are underweight minimum volatility stocks. We expect a cyclical upswing over the next six to 12 months, and min vol tends to lag in such an environment. We are overweight quality. We like tech companies with structural tailwinds and see companies with strong balance sheets and cash flows as resilient against a range of outcomes in the pandemic and economy.

BlackRock Investment Institute

We have downgraded European equities to underweight. The market has relatively high exposure to financials pressured by low rates. It also faces structural growth challenges, even given potential for catch up growth in a vaccine led revival.

BMO Global Asset Management

Though it may take a few months to get the pieces in place for a pronounced recovery, we are optimistic that this can happen in 2021. In terms of positioning, we expect accommodative policy and a vaccine driven recovery to support risk assets. As a result, we are currently overweight US and emerging-market equities and underweight fixed income.

BMO Global Asset Management

Emerging markets also look poised to benefit from a global economic recovery in 2021, with rates of growth again superior to those of developed markets.

BMO Global Asset Management

We continue to have a favorable view on equities for 2021 due to our expectations for a vaccine-driven economic recovery and revitalized global corporate earnings

BNP Paribas

A widely distributed vaccine will enable corporates and consumers to envision a post-Covid world at last, we expect, and revive investment and spending plans. This sets the stage for a strong economic recovery, and we forecast global GDP to grow by 5.6% in 2021.

BNP Paribas

Monetary policy is likely to remain exceptionally accommodative, reflecting an asymmetric reaction from central banks in which they will be quick to respond to negative news but cautious in responding to positive developments. We expect this, along with an expansionary fiscal stance, to support economic activity.

BNP Paribas

China stands out from the rest of the world, in terms of both growth and monetary policy. We expect GDP growth of 8.6% in 2021 and 5.3% in 2022, with the authorities balancing liquidity availability against financial risk control.

BNY Mellon

With the US labor force under great pressure, we expect recovery to be slow as a supply-constrained economy experiences bottlenecks. Lower productivity is priced through deeply negative real interest rates.

BNY Mellon

The euro zone's response to the pandemic has slowly but surely taken a pro-growth and investment direction. The NGEU recovery plan, supported by EU-issued bonds, is a sign that the ghosts of austerity may have been laid to rest. European reflation may finally have a chance.

Citi

The outlook for 2021 is quite good in economic terms (GDP rising 4.9%) and unemployment falling with recovered hiring intentions. The key question is how much of the market returns have been pulled forward and we suspect a great deal.

Citi

We (still) see mainly upside risks to consensus projections for growth and inflation and expect that Fed policy will be slightly more-hawkish than most anticipate. We project 5.1% year-on-year real GDP growth, a core inflation overshoot followed by ~2%YoY core PCE and that the Fed will taper asset purchases in Q4 2021 and may raise rates as early as December 2022.

Citi

Next year, in our view, the EM vs. DM equity trade may be supported by significant tailwinds, such as global trade volume growth recovery, weaker dollar dynamics and relative valuation that supports the view for regions such as Latam and CEEMEA to "catch up."

Citi Private Bank

Although the vaccine cavalry has arrived, we need to understand the safety and longevity of the vaccines themselves. With a new US government, there is hope for more normalized trade and international relations, but the very composition of governments from the Americas to China to Brazil may limit the ability to achieve much. And without sustained low rates, the recovery itself may be imperiled.

Columbia Threadneedle

Following unprecedented levels of stimulus and government intervention the level of debt is going to be even greater than it was after 2009 and we will emerge into a world of low inflation, low growth and low interest rates—such a backdrop is not one where traditional value investing is likely to outperform over the longer term. We would therefore caution against a rush to value and poorly performing stocks irrespective of the outlook, and would also caution investors about value traps.

Credit Suisse

We are positively inclined toward economically-sensitive groups, and believe their momentum should persist over the near-term. However, the greatest sequential improvement in economic activity is well behind us and moderating.

Credit Suisse

Non-cyclicals should lag in an improving economy as falling volatility supports higher P/Es for riskier assets, and rising rates makes their high dividend yields less appealing. The one exception is health care which should outperform given a more robust earnings trend.

Evercore ISI

2021 top line growth, driven by a rebound in consumer spending on services should be strong than currently expected. Split government in the US limits the scope for changes to the tax code. Borrowing cost remain near all-time lows. Rapidly recovering earnings growth and management sentiment toward cash return will help boost buyback activity over the next year. Taken together, those forces leave us with a 2021 EPS estimate of $176, about $10 above current consensus.

Evercore ISI

Though vaccine deployment will help boost the global economy, emerging markets are a particular source of strength. Increased business investment and replenishing of still low inventories will boost activity in the world's manufacturing hubs. Commodity prices are starting to reflect that shift. We favor mature growth cyclicals (Industrials, Materials, Energy) and emerging markets in 2021.

Fidelity

Overall, we view risks to global growth forecasts (5.4% according to the latest IMF projections) as balanced, but remain alert to the risk of a double-dip recession in the US

Franklin Templeton

We are optimistic in emerging-market (EM) debt, which we believe is a highly undervalued space. Despite the enormous medical and fiscal challenges EM countries face, the steadily increasing probability of a global economic recovery will entice investors into EM debt.

Franklin Templeton

We see a synchronized global recovery gradually unfolding, supported by the vaccines and the lagging impact of massive monetary and fiscal stimulus. All of this should continue to reward global small caps -and cyclicals in particular.

Goldman Sachs

With a favourable growth/inflation mix and still elevated equity risk premia we are overweight equities and underweight bonds.

Goldman Sachs

As the economic recovery consolidates next year, we expect to see more differentiation across the curve, with policymakers committing to keeping front-end rates low, but higher expectations for real growth and inflation driving long-end rates higher.

Goldman Sachs

Downgrades to US growth expectations on the back of new covid restrictions would likely restrain pro-cyclical trades, especially longs in breakeven inflation and nominal rate payers. Recent market shifts mean that some upcoming weakness has now been priced in Europe and energy markets, but less clearly elsewhere.

Goldman Sachs

Our forecasts are for a relatively modest increase in yields and are driven by a further upgrade to the US outlook. Historically, cyclically-driven yield increases are generally not a sustained headwind for risk markets. With a firmly dovish Fed, the mix of growth and rates that we forecast remains a very favorable one. So we think the significance of rate shifts for other assets may be felt more in "rotations" than at the headline level.

Goldman Sachs

Unlocking the upside in European assets requires higher domestic and global growth, and markets will likely question that upside until local outbreaks ease.

Goldman Sachs

Our China team's growth expectations of 7.5% real and 10%+ nominal sets us up for a period of solid outperformance that we think is still underappreciated by asset markets.

Goldman Sachs

A stronger recovery next year may also bring its own risks. In credit markets, a more powerful growth impulse and further gains in equity markets over the next year could bring "releveraging" risk more firmly into focus.

HSBC Asset Management

We expect to face an intensified regime of lower-for-longer expected returns, which requires careful navigation. Therefore, a phase of economic restoration is more realistic than a rapid reflation scenario.

ING

On the European side, we forecast 10-year EUR swap rates to rise to only 0.05% next year, equivalent to -0.25% for 10-year Germany. Inflation is going nowhere fast, ECB demand for bonds continues to grow, and fiscal stimulus is insufficient to boost long-term growth expectations.

JPMorgan

In US investment grade, the team forecasts tighter 2021 year-end spreads at 125 basis points for a total return of 1.7%. Drivers include stronger economic growth, supportive fiscal/monetary policy, lower net issuance, a lower amount of fallen angels and ongoing low FX hedging costs.

JPMorgan

In US high yield, optimism remain heading into 2021 given the expectation for an extension of the current economic recovery matched with only a limited rise in Treasury yields. HY spreads are forecasted at 450 basis points by year-end equating to a full-year return of 7.5%.

JPMorgan

JPM expects the level of global GDP to remain about 3% below its pre-crisis trend, which represents a larger shortfall at a similar stage of any recovery over the past 50 years. Hence why we project sub-target inflation in all DM economies plus China next year.

JPMorgan

With monetary options limited (JPM expects $5 trillion of balance sheet expansion in 2021 compared to $8 trillion in 2020) and fiscal policy delivering drag of 2% of global GDP next year, meaningfully higher inflation is a risk scenario rather than a baseline.

JPMorgan

Treasury yields are projected higher, as large-scale fiscal stimulus and widely available vaccines drive better growth outcomes in the second half. Treasury 10-year yields are forecast to rise to 1.1% in the second quarter and 1.3% in the fourth quarter. 3s/10s steepeners are recommended.

JPMorgan

The backdrop of globally synchronized expansion, legislative gridlock and positive vaccine news should be a strong catalyst for value stocks, which have been beaten down due to the Covid crisis. By contrast, momentum/growth stocks should lag. We see value converging to the upside as opposed to momentum converging to the downside.

JPMorgan Asset Management

International growth will depend on regional pandemic trends early in the year but should broadly accelerate once vaccines are distributed. In addition, a more predictable trade policy from the incoming Biden administration and stronger international economic growth should push the US dollar lower.

JPMorgan Asset Management

Once investors feel more confident about the global recovery, cyclical regions should outperform more defensive ones. This suggests strong performance ahead for Europe, Japan and non-North Asia emerging markets. This catch-up began in November.

Lombard Odier

We expect an uneven recovery, with some sectors (housing, goods, production, trade) outperforming others (services, financials and energy).

Lombard Odier

Inflation should recover but remain below target. Activity pick up should help lift prices but labour market slack should prevent an overshoot.

Mizuho

The road to unencumbered activity and travel resumption associated with ~60-70% global herd immunity is two-three quarters away.

Morgan Stanley

Stronger growth, higher inflation and a weaker dollar are offset by bottom-up fundamentals that remain soft in most markets. Supply/demand dynamics are supportive in copper and natural gas, and more negative in oil and iron ore. 2021 may be a turning point for gold, and we revise our price forecast lower.

Morgan Stanley

2020 witnessed once-in-a-century swings in the economy, policy and markets. 2021 will bring more normality. Trust the recovery, and the post-recession playbook. Overweight global equities and credit, funded by an underweight in government bonds and cash. Commodities lag other risk assets, as mixed fundamentals drive dispersion. Dollar to weaken, volatility to fall.

Morgan Stanley

With the Fed on hold until late 2023 and a continued V-shaped recovery, investors should follow the portfolio balance channel. We recommend investors go down in quality and up in risk across the securitized space; we expect higher-yielding, lower-rated sectors to outperform less risky assets.

NatWest

The current recovery is fundamentally different, and more inflationary, than in 2008. The foundations for higher inflation were in place before Covid-19—the crisis is likely accelerating the trend. Inflation markets don't price this.

NatWest

A vaccine should spark a slow, steady recovery for the global consumer next year. This is a better backdrop for emerging markets, although a uniform rally is not likely. Sectors like transport and banks, and commodities like oil, will benefit from a more confident consumer.

NatWest

Global growth prospects are good, but the US will lag, Fed policy will remain easy and the dollar is expensive. EM FX is set for a better year, especially for countries with solid foundations for better growth.

NatWest

Steeper curves are likely. Bonds are too pessimistic about the impact of fiscal policy on curve shape, especially in Europe. Fiscal deficits will remain loose and supply will remain far larger than in pre-crisis years. The euro area should lead the 2021 recovery.

Neuberger Berman

The recession caused credit spreads to widen. Rapid and substantial central bank intervention made this an exceptionally short-lived phenomenon, however, leaving investors with a highly complex mix of early- and late-cycle characteristics, and default and valuation risks. We think this demands a flexible, "go-anywhere" approach to credit.

Neuberger Berman

With rate volatility suppressed, worldwide growth and inflation differentials are more likely to be expressed through currency markets. Heightened currency volatility and the end of persistent US dollar strength would strengthen the case for dynamic currency hedging.

Neuberger Berman

Early-cycle dynamics will likely favor cyclical stocks as economic growth accelerates, but ultimately, we believe the looming backdrop of secular stagnation—characterized by low rates, low growth and low return outlooks—will lend support to growth stocks and long-duration assets. It remains important to diversify across style factors.

Pictet

Our business cycle indicators point to to mid-single digit growth in world GDP in 2021, but positive base effects cannot hide the long-lasting damage caused by the pandemic. We estimate that the fallout from Covid-19 will permanently reduce global GDP by 4 percentage points. It will take years before we get back to pre-Covid-19 levels.

Pictet

The world's recovery from the Covid-19 pandemic should provide a strong boost to global stocks, which should gain 10-15%. But those gains will mask a significant divergence in the returns of regional markets.

Pictet

The surge in GDP growth is unlikely to lead to a sharp sell-off in developed market government bonds. That's primarily because central banks won't take any unnecessary risks.

Pictet

The combination of strong growth and rising commodity prices will feed through to a moderate pickup in inflation expectations. We expect Treasury Inflation-Protected Securities (TIPS) to outperform all developed market nominal bonds.

Pictet

In a year that will see healthy global growth and increased international trade, emerging-market local currency bonds should also fare well. Adding to their investment appeal is the prospect of a strong rally in emerging market currencies, which should unfold as the global economy recovers and as trade tensions ease under a Biden administration.

Pimco

We believe it remains critical to build resilient and diversified portfolios that can withstand a range of economic scenarios. We see two primary risks to our positioning—lower growth and higher inflation—and we are focused on hedging against these.

Principal Global Investors

Asian economies were much quicker to learn how to live alongside Covid-19 without inflating its spread, and as such, these markets stand to gain the least from the eventual vaccine rollout.

Robeco

Looking ahead to 2021, the upside of additional fiscal stimulus—bringing the economic recovery forward in time by additional government spending—clearly outweighs the downside: higher government debt levels. Central banks facilitate ongoing fiscal spending by keeping policy rates at the effective lower bound. Advanced economies return to pre-pandemic output levels by the end of 2021.

Robeco

With the vaccine and both fiscal and monetary stimulus facilitating further economic recovery, the rebalancing of commodity supply and demand that started a couple of months ago continues. Demand for base materials driven by China in particular increases, pushing prices higher. We see OPEC+ increasing production slowly, matched by a return in demand and providing decent upside for oil prices.

Societe Generale

Reduced currency risks and accelerating growth in Asia (more than 80% of EM equities are in Asia) make us even more optimistic on EM equities. We still really like China equities for the long term, but are even keener on some laggards (Korea, Indonesia).

Societe Generale

In Asia, a stronger growth profile coupled with lower valuations could lead to Asia ex-Japan continuing to outperform global peers. With growth momentum shifting to cyclicals, along with a resilient technology cycle, our models estimate higher upside for cyclical markets such as Korea and Japan and a more in-line market performance from greater China.

TD Securities

With the global economy operating well below potential and inflation pressures muted, central bank taps will remain open for years to come, while fiscal stimulus is only gradually withdrawn. The balance between fiscal and monetary policies in supporting the recovery will be key.

TD Securities

Our expectation is broadening vaccinations in DMs in the spring, which lead to "behavioral immunity" in the second half of 2021 when economic activity is able to rapidly rebound, with most EMs likely more of a 2022 story.

TD Securities

As we approach year-end, it's clear that early momentum is fading and only in the second quarter of 2021and beyond do we expect growth to pick up materially.

TD Securities

The first half is set up as yet another which could see worse labour market data on the ground but higher returns in risk assets. But the second half of the year may underwhelm those expecting surging economic growth to translate into easy gains as PMIs decelerate, reflation flatlines, and term premium and policy rate expectations drift higher.

TD Securities

If the recovery in economic growth is even stronger than we expect, we are likely to see rotations out of sovereign debt into credit. EM hard currency is once again a beneficiary along with the broad credit complex, and this would likely see investors legging into small EMFX long positions in anticipation of a broader move.

TD Securities

The dollar could benefit early in 2021, reflecting Covid-inspired global growth downgrades. Risk assets are priced for peak optimism, increasing near-term drawdown risk. Still, we expect the dollar secular downtrend to persist, reflecting vaccines and eventual behavioral immunity that reinvigorates the reflation trade.

UBS

We expect the US dollar to weaken in 2021 due to a recovering global economy, and a diminished interest rate differential. To position for this, we think investors should diversify across G-10 currencies or into select emerging market currencies and gold.

UBS

We expect the wide-scale rollout of a vaccine in the first half of 2021 to enable global output and corporate earnings to return to pre-pandemic highs by the end of the year.

UBS

Going into 2021, we prefer Value over Growth over Defensives. This is a tactical view. We are watching for a peak in inflation expectations to move back to a preference for Growth. Small Cap vs Large Cap is likely a better way to gain exposure to the recovery than Value vs Growth.

Vanguard

In China, we see the robust recovery extending in 2021 with growth of 9%. Elsewhere, we expect growth of 5% in the US and 5% in the euro area, with those economies making meaningful progress toward full employment levels in 2021. In emerging markets, we expect a more uneven and challenging recovery, with growth of 6%.

Vanguard

We anticipate a cyclical bounce in consumer inflation from pandemic lows near 1% to rates closer to 2% as spare capacity is used up and the recovery continues. However, as growth and inflation firm, and as the immunity gap closes, an "inflation scare" is possible. A risk is that markets could confuse this modest reflationary bounce with a more severe but unlikely episode.

MONETARY POLICY

Amundi

With the amount of negative yielding debt close to historical highs and interest rates expected to remain low in the short term, investors should build an income engine by searching for opportunities across the board, including emerging market bonds, private debt, loans, real assets (infrastructure, real estate) and high-income equities.

Amundi

In the medium term, the main risk for investors will be the de-anchoring of real rates and inflation expectations due to the massive fiscal stimulus, the monetisation of public deficits, the rebalancing of social and political support in favor of labour and the retreat of global trade. Markets are not pricing in this risk yet, but investors should start looking at strategies for a possible inflation comeback.

AXA Investment Managers

What happens to bond yields will be determined by the on-hold super-easy monetary policy, and the potential for expectations of growth and inflation. There may be scope for higher levels of government borrowing to push yields up. Many anticipate higher yields, given where they presently are, and the potential for a reversal of the past year's moves. However, forecasts of higher bond yields have been subject to systematic errors for some time. Without inflation, investors really should mull over whether central banks will want higher long-term real yields.

Bank of America

Despite the recovery, global inflation likely will remain low and many policy rates likely will remain stuck near zero.

Bank of America

Japanese growth is poised to slow in the near-term due to the Covid-19 third wave. But the recovery has room to run in 2021. Weak inflation means that BOJ policy is frozen for the foreseeable future.

Barclays

Policy rate expectations are unlikely to move in Europe, but a steeper curve is likely despite the ECB's record asset purchases, as issuers continue to term out to take advantage of low yields, putting upward pressure on longer tenors.

Barclays

Bund yields are unlikely to rise sharply due to poor inflation and very favourable supply/demand backdrop from the ECB. In EGB spreads, we recommend fading temporary widening episodes in peripheral spreads as well as curves.

BCA Research

For now, no central bank or government wants to remove economic support too quickly. Monetary policy will remain very stimulative as long as inflation is low, which means no tightening until late 2022, at the earliest. Fiscal deficits will narrow, but more slowly than private savings will decline.

BCA Research

Corporate spreads should stay contained thanks to a very easy policy backdrop and the positive impact on cash flows and defaults of the ongoing recovery. We also like municipal bonds but worry about pre-payment risks for MBS.

BCA Research

Oil and gold have upside next year. Crude will benefit from both supply-side discipline and a recovery in oil demand. Gold will strengthen as global central banks will maintain extremely accommodative conditions and global fiscal authorities will remain generous. A weaker dollar will flatter both commodities.

BCA Research

Bond yields can rise next year, but not by much. Ebbing deflationary pressures and the global industrial cycle upswing will lift Treasury yields. However, the extremely low probability of monetary tightening in 2021 and 2022 will create a ceiling. We favor peripheral European bonds at the expense of German Bunds and Treasuries.

BlackRock Investment Institute

On a strategic horizon, the policy revolution and our view of higher inflation over the medium term warrant a rethink of government bond allocations. We see nominal bond yields as staying relatively range-bound, further diminishing the role of government bonds as portfolio ballast. We prefer inflation-linked bonds.

BlackRock Investment Institute

Central banks appear committed to limit any rises in nominal yields even as inflation picks up. Investors will need a new playbook to navigate this. We underweight government bonds and maintain a higher strategic allocation to equities than in typical periods of rising inflation.

BlackRock Investment Institute

We are overweight euro area peripheral government bonds despite recent outperformance. We see further rate compression due to stepped up quantitative easing by the European Central Bank and other policy actions. We are neutral on bunds.

BMO Global Asset Management

Central banks should remain accommodative in 2021 and beyond. The European Central Bank, for example, may increase asset purchases in the near future.

BMO Global Asset Management

Upward pressure on commodity prices, consistent with a recovery in manufacturing, is expected to have a greater impact in emerging markets. The Fed's policy shift to "average inflation targeting" means that the external risk to emerging markets of a strong dollar and tightened liquidity as growth accelerates has reduced considerably.

BMO Global Asset Management

With continued fiscal and monetary accommodation, we expect a modest increase in longer global rates, as global growth accelerates and inflation ticks upward. At the same time, shorter interest rates should remain anchored at their current levels with central banks on pause for the coming year. Global yield curves should thus steepen modestly throughout the year. However, with absolute rates remaining historically low, this environment should be supportive for equities and broader risk markets globally.

BNP Paribas

The Federal Reserve's strategy suggests a readiness to run the economy hot until after inflation actually materialises. This puts pressure on the ECB and other central banks to also remain accommodative.

BNY Mellon

Bond volatility is at rock bottom, but risks to long duration positions loom as the economy recovers with the delivery of a vaccine. The Fed might have to move to some form of yield curve control and financial repression.

Citi

We expect rates to reflect the recovery and continue moving higher, moderated by the Fed's continued purchases and still-robust demand for Treasuries. We also expect wider breakevens and a steeper curve.

Citi

The front-end yield complex should grind lower as reserves increase and bill supply declines.

Citi

Fundamental supports for the dollar have been eroded since the onset of the Covid-crisis and are unlikely to reverse over the medium term. The Fed's uber-loose policy of QE, lower for longer rates and average inflation targeting is indicative of a lower dollar over time.

Citi Private Bank

The ratio of equity to debt should be modified to reflect this period of financial repression. The exposure of portfolios to unstoppable trends should be increased as a proportion of overall equity exposure. The ability to capture "alpha" as markets normalize coming out of the pandemic can be added as a tactical opportunity. In short, mean reversion will take time and portfolios can position for it.

Citi Private Bank

There are other structural reasons for investment optimism, at least for equity investors. The Federal Reserve's decision to hold interest rates at atypically low levels to encourage a full recovery reminds us of the period from 1945 to 1965 when such a policy devalued cash and bond holdings intentionally.

Citi Private Bank

Columbia Threadneedle

DWS

Fed focus on financial conditions; low chance of negative rates. Estimated rate: 0.00% - 0.25%. ECB PEPP program to be extended and increased; dovish stance with an estimated rate of -0.50%. PBOC supportive but no further easing as recovery is on track (3.55%).

Fidelity

While inflation risk is not as great as it might have been under a "blue wave" scenario, it hasn't gone away. And the risk may increase if an effective vaccine is rolled out more quickly than anticipated or if total social financing in China jumps. Central banks could be deliberately slow to respond to signs of inflation and higher yields, as they attempt to keep nominal rates anchored at low levels.

Fidelity

Ever-easier monetary policy is likely to become structural, especially in developed markets.

Fidelity

In the absence of a massive fiscal boost, it will be harder for the Fed alone to generate a sustainable increase in inflation, despite adopting a flexible average inflation targeting framework. Loosening an already loose policy is likely to have less impact than it did in 2020. Nonetheless, we expect the Fed to ease policy in the near term as it responds to changing market and economic conditions.

Franklin Templeton

The historically unprecedented asymmetric nature of monetary policy, particularly in the US, will keep interest rates ultra-low for years.

Goldman Sachs

Experience over the past year suggests the bar for negative rates is very high. With negative rates off the table in practice, non-US DM bond yields should also move higher next year.

Goldman Sachs

Cyclical assets should also benefit from a friendly policy mix. Major central banks (other than the PBOC) will likely keep policy rates at their practical minimums for at least a couple more years, and investors can expect active support for bond markets from quantitative easing

Goldman Sachs

We highlight four risks for 2021: (1) Second-wave risks and inoculation disappointments, (2) Concentration, regulation, taxation, (3) Inflation and rates volatility and (4) Policy uncertainty.

ING

Looking ahead to 2021, we expect the commodities complex to continue to move higher. A further recovery in economies around the world should prove supportive, while there is the potential for further stimulus. Significant growth in money supply, rock bottom interest rates and fiscal stimulus have boosted inflation expectations; therefore, we expect to see more money flowing into commodities with speculators boosting their long position, notably in metals and agricultural

ING

It will not be a straight-line sell-off in the dollar - the legacy of Covid-19 in both Europe and the US will see to that. And key risks to our bullish call on global currency pairs stem from the world economy failing to exit stall speed or the Fed taking away the punchbowl too early.

JPMorgan

In euro investment grade, the ECB is expected to purchase 8 billion euros per month of corporate bonds next year, taking the total holdings up to just under 40% of the eligible universe while supply is expected to slow. Hence, spreads are forecasted 17 basis points tighter to 90 basis points by the end of next year.

JPMorgan

JPMorgan Asset Management

A commitment to maintain very low short-term rates until the economy reaches "maximum employment" could lead to a steepening of the yield curve in the year ahead, requiring an active and diversified approach to fixed income allocations.

Lombard Odier

Given the continued monetary and fiscal support we favor corporate equities and debt over sovereign debt.

Lombard Odier

In an environment of low inflation and anchored monetary policy, EM hard currency bonds look particularly attractive.

Mizuho

Unprecedented monetary stimulus front-loaded alongside strains from record fiscal stimulus hamper scope for more policy fillip.

Mizuho

Central banks will justifiably not react to any initial pick-up in inflationary pressures; even if this is over are above base effects. The Fed's shift to flexible average inflation targeting in this regard will be a global anchor for not only "lower for longer" rates, but also "larger for longer" balance sheets.

Morgan Stanley

NatWest

Much of the monetary policy work is done, but we expect more QE from some of the larger central banks. Rate hikes will be few and far between, but certain EM central banks and Norges Bank will have to consider tightening in 2021.

NatWest

Neuberger Berman

The end of Donald Trump's presidency is not the end of political populism or its causes, in our view, in the US or more broadly. This likely means continued political and geopolitical volatility, but perhaps more importantly, it also makes additional fiscal stimulus more likely, as governments pursue borrow-and-spend policies seeking to address the causes of populist discontent.

Nikko AM

Central banks will likely maintain QE purchases and interest rates at current levels in 2021. This will likely be enough to fund fiscal deficits and maintain calm in global bond markets.

Pictet

We would expect fiscal stimulus to be reduced compared to 2020, not through a return to austerity policies, but because we expect fewer new measures. Central banks will act as "shock absorbers" by keeping rates low and maintaining stimulus.

Pictet

Liquidity conditions are still likely to deteriorate. We estimate that the total assets of major central banks will expand only $3 trillion next year. This is double the yearly average seen the 2008 financial crisis but significantly below 2020's record $8 trillion.

Pictet

Government bond yields in the developed world are likely to move gently higher tempered by central bank action which could include balance sheet expansion by the ECB and yield curve control by the Federal Reserve.

Pictet

Gold should continue to rally. We forecast the gold price will hit $2,000 by end-2021. Continued quantitative easing by global central banks, a weaker trajectory for the dollar and real rates dipping further into negative territory should all underpin demand.

Pictet

The surge in GDP growth is unlikely to lead to a sharp sell-off in developed market government bonds. That's primarily because central banks won't take any unnecessary risks.

Principal Global Investors

While risks such as premature policy tightening, delays in distributing vaccines or new geopolitical challenges could upend the economic recovery and the debt outlook, we remain optimistic for 2021. It's important to be thoughtful about allocating smartly to and within debt products.

Robeco

Government bond yields continue to grind higher, especially in the US With the Fed aiming for an asymmetrical inflation target, leaving room to make up for below target inflation, little action is expected when inflation expectations rise. Yet, with central bank policy still highly accommodative and discussions lingering about what asymmetric inflation targeting means in practice, the potential rise in yields is limited.

Robeco

Societe Generale

Government bonds will likely come under pressure in 2021, as prospects of viable vaccines remove some clouds from the economic horizon, and while fiscal policy is set to take centre stage in most developed countries (albeit with no imminent normalisation of monetary policy). Heavy supply, fuelled by massive budget deficits, and no rush into fiscal tightening (unlike in the last crisis), should drive bond yields higher. Given the very low level of yields, there is no longer a cushion to absorb a rise, not even a moderate one.

Societe Generale

We continue to rotate out of US Big Tech, which represents more risk (dear valuation, pandemic peaking then declining) and more volatility. U..S mid-caps can outperform the Nasdaq 100. We particularly like Japan equities, which we see as under-owned, under-valued and under-leveraged, backed by an equity-hungry Bank of Japan. We keep exposure to the cheap yen, noting the correlation between the yen and Japanese equities has structurally fallen significantly.

Societe Generale

While our central scenario is for a gradually weaker US dollar, notably against developed market currencies, more aggressive monetary measures to prevent rising yields would accelerate broad-based downward pressure on the dollar.

Societe Generale

With fiscal policy expanding, monetary policy remaining loose and an ambitious reform and regulatory agenda, the conditions appear in place for further Japanese equity upside.

Societe Generale

In advanced economies, we expect inflation to tick up a bit from extremely depressed levels, but to remain below targets for years. In EM economies, we expect it to slow quite sharply in 2021. Some further easing in policy stance is likely in the near term (ECB, etc), but we expect central banks mostly to remain on hold.

TD Securities

With central banks keeping the front end anchored, the long end will be sensitive to vaccine rollout, supply, and inflation risk. We expect 10-year rates to remain range-bound given the scale of the Covid shock and policy response.

TD Securities

As we look into 2021, we expect G10 QE programs to continue actively buying through 2021, though with the exception of the ECB, at a slower pace. We expect G10 policy rates to remain at their current levels for years to come - with the first BOC hike in 2023, the BOE in 2024 or later, the Fed likely in 2025, and the ECB beyond that.

TD Securities

Many EMs will likely benefit from strengthening capital inflows, improving external positions, dollar weakness and low US yields, which alongside vaccine rollout will provide a conducive environment for EM asset market gains. Risks of over-extended fiscal and monetary policy easing will need to be watched closely.

UBS

We anticipate few inflationary threats in 2021, and expect interest rates to remain low for the foreseeable future.

UBS

Vanguard

Both monetary and fiscal policy will remain supportive in 2021, but the primary risk factor is the pandemic's fate and path.

Vanguard

We expect interest rates globally to remain low despite our constructive outlook for firming global economic growth and inflation as 2021 progresses. While yield curves may steepen, short-term rates are unlikely to rise in any major developed market as monetary policy remains highly accommodative. Vanguard expects bond portfolios, of all types and maturities, to earn returns close to their current yield levels. As 2021 unfolds, the greatest risk factor would appear to be higher-than-expected inflation.

INFLATION

Allianz Investment Management

US inflation at 1.6% to 2.1%. While we expect demand and prices to rebound in depressed sectors next year, there is little evidence to support overshooting inflation.

Amundi

AXA Investment Managers

Bank of America

Despite the recovery, global inflation likely will remain low and many policy rates likely will remain stuck near zero.

Bank of America

Japanese growth is poised to slow in the near-term due to the Covid-19 third wave. But the recovery has room to run in 2021. Weak inflation means that BOJ policy is frozen for the foreseeable future.

Barclays

BCA Research

Imbalances in the global economy are growing, and the explosion in debt loads witnessed this year will carry significant future costs. Rising inflation is the most likely long-term consequence because of rising populism and the meaningful chance of financial repression. This change in inflation dynamics will generate poor long-term returns for a 60/40 portfolio, especially because asset valuations are so expensive.

BCA Research

Inflation is still likely to spike in the first half of the year, but this jump will prove temporary.

BCA Research

We are more negative on Treasuries than Bunds. The valuation difference between the two safe havens is minimal. However, in 2020 the US has been more reflationary than Europe and the recent decline in the dollar should lift US inflation relative to Germany's.

BlackRock Investment Institute

BNP Paribas

We see inflation expectations rising in 2021, supporting risky assets. We are bullish on equities, credit and emerging markets.

BNP Paribas

BNY Mellon

Citi

We do not expect to enter into a public debt crisis in 2021, but there is a small margin for error and three risk factors are worth watching: Inflation rises and central banks tighten; activity disappoints on high uncertainty; the fiscal burden is larger than anticipated.

Citi

Columbia Threadneedle

DWS

Inflation will not be an issue in 2020 nor in 2021. Recent pick-up in the US to be temporary; moderate path towards 2% (estimated 1.6% in 2020 and 1.8 in 2021). Low trend in the euro zone due to high degree of spare capacity; below target (estimated 0.3% in 2020 and 1% in 2021).

Fidelity

Goldman Sachs

Safe-haven assets such as the dollar and US Treasuries should continue to underperform, especially if inflation expectations pick up.

Goldman Sachs

With a favourable growth/inflation mix and still elevated equity risk premia we are overweight equities and underweight bonds.

Goldman Sachs

Should Treasury yields and breakeven inflation pick up from here, as our forecasts imply, the value of both assets as downside hedges may improve relatively quickly.

Goldman Sachs

We highlight four risks for 2021: (1) Second-wave risks and inoculation disappointments, (2) Concentration, regulation, taxation, (3) Inflation and rates volatility and (4) Policy uncertainty.

ING

While vaccine optimism abounds, we still believe gold prices will trend higher next year amid growing inflation expectations and negative real yields.

ING

JPMorgan

JPMorgan Asset Management

Broadly, we still think core bonds provide a degree of equity diversification and therefore should remain a core allocation within portfolios. As a complement to that core position, investors should look to gradually shorten portfolio duration while identifying companies and countries with strong credit fundamentals, balancing a gradual improvement in the economy and inflation while still generating income.

Lombard Odier

Inflation should recover but remain below target. Activity pick up should help lift prices but labour market slack should prevent an overshoot.

Lombard Odier

In an environment of low inflation and anchored monetary policy, EM hard currency bonds look particularly attractive.

Mizuho

Morgan Stanley

NatWest

Near-term inflation should remain benign. But medium-run risks are tilted sharply higher and markets are too pessimistic. The vaccine should help accelerate the transition from short to medium run inflation trends.

NatWest

Pictet

Pimco

While inflation should remain subdued in the short term, large fiscal injections, climbing government debt, and accommodative central banks could lead to higher inflation over the longer term. We are constructive on inflation-linked bonds and gold, which tends to maintain low correlations to traditional risk assets.

Pimco

Robeco

We see ebbing disinflationary pressures in the course of 2021, with inflation expectations expected to move gradually higher. We transition slowly towards a reflation-like scenario, as the disinflationary shock starts to fade.

Robeco

We see demand-pull inflation pressures building in the second half of 2021 but an inflation overshoot above the 2% inflation target won't be achieved in the US and euro zone.

Robeco

Precious metals continue to grind higher as inflation expectations rise. But with nominal yields rising as well, the tailwind for precious metal prices is less compared to the first half of 2020.

Robeco

Societe Generale

We read 2021 as a bumpy road to recovery, which should further reinforce rotation out of bonds into reflation trade like steepeners and into areas that have lagged across the asset classes that offer more value and that are more sensitive to inflation expectations.

Societe Generale

Commodities should continue to offer solid protection against the risk of a weaker dollar. We continue to split exposure between gold, as strong protection against a further rise in inflation expectations, and other more cyclical commodities like oil.

TD Securities

Outside of a sharp, temporary acceleration in inflation in mid-2021 on account of base effects, we broadly see a slow grind higher in inflation in the G10. At best, this may return to target by the end of 2022, while in the US and euro area, we see inflation persistently below target.

TD Securities

For EMs, while the magnitude of undershooting is likely to narrow, we don't expect inflation pressures to intensify significantly in the months ahead, in spite of the risks from asset purchases by some EM central banks.

TD Securities

The 10-year Treasury should stay below 1% for most of the year. The curve should steepen in the second half as inflation risk premium rises and the market prices in post-Covid vaccine normalization.

TD Securities

UBS

We anticipate few inflationary threats in 2021, and expect interest rates to remain low for the foreseeable future.

UBS

Our end-2021 US 10-year yield forecast is 1.25%. Net Treasury supply coming on to the market is still nearly $500 billion higher than a year ago, sustaining steepening pressure. The net supply position is more benign in Europe. Bunds should slowly normalise from very low levels, but BTP spreads are likely to remain steady. The U.K.'s deeply negative real rates rise as inflation expectations fall. Inflows into EM local bonds should pick up, with China and Mexico being our preferred markets.

Vanguard

The outlook for the global equity risk premium is positive and modest, with total returns expected to be 3 to 5 percentage points higher than bond returns. While equity returns will be below recent returns based on valuations and interest rates, global equities are anticipated to continue to outperform most other investments and the rate of inflation.

Vanguard

From an aggregate portfolio perspective, investors looking to hedge inflation risk should look to Treasury bills, TIPS, and commodities or gold over REITs and equities because of higher betas and/or lower volatilities.

Vanguard

Vanguard

FISCAL POLICY

Amundi

BCA Research

BMO Global Asset Management

BNP Paribas

BNY Mellon

We find significant undervaluation in AUD, GBP, JPY, CAD, TRY, RUB, BRL and MXN. Fiscal room and vaccination should be more important, however, supporting China, Mexico, Russia and the euro area.

Citi

Fidelity

Uncertainty over vaccine timings, the effects of monetary and fiscal stimulus, as well as earnings growth, may cause pockets of market volatility in 2021.

Fidelity

We expect dollar weakness will persist, amid further borrowing to fund the fiscal deficit.

Franklin Templeton

As the Covid vaccination process extends, the willingness to provide ongoing massive fiscal support should wane. In the longer term, the need for fiscal retrenchment—think higher taxes—will likely emerge.

Goldman Sachs

If the Democrats do win both races in Georgia, higher taxes and higher fiscal spending will be back on the agenda, with the associated rotations in markets.

ING

JPMorgan

JPMorgan

Lombard Odier

Private equity and real estate offer resiliency. Infrastructure assets should benefit from massive levels of government pandemic spending.

Mizuho

Unprecedented monetary stimulus front-loaded alongside strains from record fiscal stimulus hamper scope for more policy fillip.

NatWest

Neuberger Berman

Pictet

Investors should expect the environment to become a greater priority in 2021, fuelling growth in sectors like clean energy. Joe Biden's victory in the US presidential election will provide further momentum to this shift. Across the globe, green investment will form a key part of fiscal stimulus packages, feeding into a strong and synchronised economic recovery.

Pictet

Pimco

Robeco

Societe Generale

With fiscal policy expanding, monetary policy remaining loose and an ambitious reform and regulatory agenda, the conditions appear in place for further Japanese equity upside.

Societe Generale

TD Securities

UBS

New US political leadership will mean additional fiscal stimulus and more predictable policymaking , shifting market leadership accordingly.

Vanguard

Both monetary and fiscal policy will remain supportive in 2021, but the primary risk factor is the pandemic's fate and path.

Vanguard

POLITICS

Amundi

BCA Research

Compared to the past two years, geopolitical uncertainty will recede in 2021, but will remain elevated by historical standards. China and the US are interlocked in a structural rivalry, which means that flashpoints, such as Taiwanese independence, will remain a source of tensions. Europe will enjoy geopolitical tailwinds next year.

BlackRock Investment Institute

We are underweight Japanese equities. Other Asian economies may be greater beneficiaries of more predictable US trade policy under a Biden administration. A stronger yen amid potential US dollar weakness may weigh on Japanese exporters.

Citi

The Georgia Senate races represent a risk given the potential for higher taxes if the Democrats pick up the two seats.

Citi Private Bank

Columbia Threadneedle

The election results in the US mean we find ourselves in something of a middle ground in terms of stimulus and potential taxes, which is a reasonably healthy position for equity and credit markets, and certainly one that benefits the likes of US utilities, consumer staples, real estate and tech, but which may have negative implications for financials, energy and health care. Financials and energy are likely beneficiaries from the recovery/vaccine, but not as much as if stimulus were greater.

Columbia Threadneedle

The U.K. has endured an extremely challenging period, buffeted by ongoing Brexit uncertainty, political upheaval and the pandemic. Companies in the U.K. appear cheap, which is evident in the rising number of takeovers and mergers and acquisitions. With that in mind, any positive news could open the door for a stronger performance from U.K. equities in 2021.

Fidelity

Overall, we have a neutral outlook for US equities, given concentration risk at a market level and reverberations from the election.

Goldman Sachs

If the Democrats do win both races in Georgia, higher taxes and higher fiscal spending will be back on the agenda, with the associated rotations in markets.

Goldman Sachs

Political risks, debt sustainability concerns and regional fragmentation issues have not been entirely settled in Europe. Upcoming national elections in 2021 (Germany and the Netherlands) and 2022 (France and, possibly, Italy after the election of the President) will likely keep a spotlight on Europe's institutional fragilities.

JPMorgan

We view a confirmed Biden victory with a likely legislative gridlock as a goldilocks outcome for equities, a "market nirvana" scenario.

JPMorgan

Possible generators of stress include a virus that lingers for longer or keeps returning due to slow vaccine rollout; growth momentum that falters because political systems cannot mitigate the fiscal drag embedded in current legislation; a post-recession, debt-related aftershock similar to the EMU Crisis in 2010-12 or EM credit crunch in 2013-14; or a last stab at geopolitical disruption by an outgoing US President.

JPMorgan

The most significant short-term risk we see for equity markets remains the Georgia Senate races. However, this risk is likely overstated as, according to PredictIt, betting markets are implying the GOP may capture at least one of the two Senate seats.

JPMorgan Asset Management

Lombard Odier

The dollar remains overvalued and still includes some of the risk factored into US electoral chaos. We expect more weakness in 2021.

Mizuho

Intensification of hunt for yields amid a deluge of cheap money will boost EM assets and FX (accentuated by a chronic soft dollar trend); albeit in a differentiated manner consistent with Covid recovery. Exacerbated risk mis-pricing and overdone EM FX gains may emerge as sources of policy/political discomfort.

Mizuho

Risks include US-China tensions, political risks of worsening inequality post-Covid, and higher public debt after the pandemic.

Neuberger Berman

Principal Global Investors

Societe Generale

We think there is too much pessimism on Europe. Ahead of key general elections in Germany (autumn 2021) and France (spring 2022), European leaders will likely continue to put pressure on their European partners to approve the recovery fund and the green deal, which we expect to happen in the first quarter. Climbing a (political) wall of worries, a fully expansionary policy mix should ensure inflows into European equities while negative-yielding securities again top an astounding $17 trillion.

UBS

New US political leadership will mean additional fiscal stimulus and more predictable policymaking , shifting market leadership accordingly.

BREXIT

Bank of America

RISKS

Amundi

AXA Investment Managers

BCA Research

The greatest risk for stocks is an uncontrolled jump in bond yields. Another risk is that vaccine rollouts are delayed, which would rapidly sap growth expectations.

BCA Research

We could still face periods of downward pressure on activity, yields, and value stocks. For now it remains prudent not to tilt portfolios fully toward a post-Covid bias.

BCA Research

Citi

The Georgia Senate races represent a risk given the potential for higher taxes if the Democrats pick up the two seats.

Citi

Citi

The rotation to value over growth still has legs in our opinion. Higher bond yields, easier revenue comparisons, increased government regulation of tech, a capital spending rebound and considerable consumer pent-up demand for services all suggest a continued rotation towards smaller cap, cyclical and value names. Yet, a shift away from megacap tech could restrain the S&P 500 as well.

Citi Private Bank

Columbia Threadneedle

We like an element of risk within credit, but we believe investment grade is ultimately a better home for it than high yield, where we see a greater risk from higher financial leverage, which is particularly dangerous if coupled with high operational leverage.

Columbia Threadneedle

Volatility will likely continue to be elevated in 2021, but it would be a mistake to make knee-jerk reactions to sudden strong moves in markets. Again, as investors we must maintain our strategic positions and focus on the longer term. We want risk within portfolios, but we want controlled risk.

Columbia Threadneedle

Investment grade markets benefited directly from fiscal stimulus such as corporate bond-buying programs and furlough schemes. We do see some downgrade risk when those props are removed, but there is a greater risk in the high yield area where investors must tread carefully due to higher financial leverage.

Columbia Threadneedle

DWS

While markets have rallied on Covid-19 vaccine news in recent months, the precondition of quick delivery and high efficacy bear the potential for disappointment. Nevertheless, equity markets still have some room to grow.

Evercore ISI

The coast is far from clear. From the vaccine rollout to US political dysfunction and Brexit, 2021 will have its fair share of risk and volatility. After 2020 though, the next 12 months are likely to seem relatively calm.

Fidelity

Money supply growth has jumped in response to Covid-19 and asset price inflation could feed through into consumer prices, causing market tantrums. Debt levels are a concern.

Fidelity

Equity valuations are stretched; there are opportunities beneath the surface, but watch out for sudden rotations.

Fidelity

Uncertainty over vaccine timings, the effects of monetary and fiscal stimulus, as well as earnings growth, may cause pockets of market volatility in 2021.

Fidelity

Goldman Sachs

Both the funding and liquidity/microstructure risks that were such a powerful part of the downdraft in March are unlikely to be revisited to the same degree, even if the outlook deteriorates.

Goldman Sachs

We highlight four risks for 2021: (1) Second-wave risks and inoculation disappointments, (2) Concentration, regulation, taxation, (3) Inflation and rates volatility and (4) Policy uncertainty.

Goldman Sachs

The biggest risk to asset markets—and our own central forecast—still comes from health outcomes.

Goldman Sachs

If the Democrats do win both races in Georgia, higher taxes and higher fiscal spending will be back on the agenda, with the associated rotations in markets.

JPMorgan

Mizuho

Risks include US-China tensions, political risks of worsening inequality post-Covid, and higher public debt after the pandemic.

Pictet

Risks from persistent Covid cases will weigh on US and European markets, but the ambitious climate agenda of President-elect Joe Biden, as well as Europe's green new deal, should see environment-related industries such as clean energy outperform.

Pictet

Cyclical stocks that are sensitive to a recovery in capital spending, such as industrials and materials, have the brightest prospects as these industries should benefit from pent-up demand from companies that need to upgrade their technology. Clouds are gathering over tech, not least because of their stretched valuations. However in the absence of a very strong pick up in inflation and bond yields, we think it is premature to fully rotate from growth stocks to unloved "value" companies.

Pimco

Principal Global Investors

Societe Generale

Credit will start to suffer from defaults and a new M&A cycle. Despite heavy state interventionism, company defaults should rise. We want to protect portfolios by taking some profits on credit and shifting exposure to a strong-versus-weak balance sheet strategy.

TD Securities

While we can confidently say that vaccines now exist and appear to be effective, there will be questions and uncertainties as they are rolled out.

TD Securities

Vanguard

Both monetary and fiscal policy will remain supportive in 2021, but the primary risk factor is the pandemic's fate and path.

Vanguard

Elevated valuations raise the probability of a correction that could lead to more attractive valuations for financial assets and a higher return outlook compared with our forecasts today. Nonetheless, the return outlook is still likely to remain much lower than the experience of previous decades and, in particular, of the post-global financial crisis years.

Vanguard

CHINA

Allianz Investment Management

While we expect a softer tone in the headlines on the China trade situation, we anticipate a hard line to remain as tougher China trade policies have gained bipartisan support.

Amundi

Bank of America

Barclays

While credit spreads are back at pre-Covid levels for many parts of the market, the path of least resistance is further tightening. We prefer longer-dated BBBs in both the US and Europe. We also like insurance, REITS and bank LT2s as opposed to bank senior debt, which has already seen strong performance. We also see potential opportunities in Chinese property debt, where the government has pushed the largest developers to begin deleveraging.

BCA Research

BlackRock Investment Institute

Covid-19 has accelerated geopolitical transformations such as a bipolar US-China world order and a remaking of global supply chains—placing greater weight on resilience and less on efficiency. We favor deliberate country diversification and above-benchmark China exposures.

BNP Paribas

BNY Mellon

China's 14th Five-Year Plan has established a 15-year strategy to achieve self-reliance. Inflows will still be welcome, but China's growth plans are for its own ends, and reciprocation to reflate the world is not a priority.

Columbia Threadneedle

Looking at specific equity markets, it is a question of short term versus long term. The U.K. is clearly cheaper than other markets around the world and may benefit if we see the recovery that we expect to see over the next nine to 12 months; and Europe is in a similar position, as indeed is Japan. Longer term, we can see further potential in the US and Asia/emerging markets.

DWS

Fidelity

With yields at historic lows, investors will need to search more widely for sources of defensiveness. In practice, this means looking beyond developed market government bonds and towards assets like Chinese government bonds, which offer compelling relative yields.

Fidelity

From a regional perspective, the team is most positive about the prospects for emerging markets, specifically on emerging Asia (e.g. China, Korea and India), given attractive asset valuations, earnings revisions and technical market factors relating to broad investor positioning.

Goldman Sachs

Our China team's growth expectations of 7.5% real and 10%+ nominal sets us up for a period of solid outperformance that we think is still underappreciated by asset markets.

Goldman Sachs

CNY and China-linked assets may be especially attractive as we traverse a tough winter given demonstrable outperformance in covid management.

HSBC Asset Management

With Covid-19 continuing to dominate headlines, industrialised Asia, specifically mainland China, South Korea, Taiwan and Hong Kong, remain preferred markets in 2021, as economic strength and fundamentals in North Asia stand out relative to the rest of the world.

Lombard Odier

China's strong and more domestic-driven economy makes the Chinese equity markets increasingly uncorrelated to the rest of the world.

Mizuho

Risks include US-China tensions, political risks of worsening inequality post-Covid, and higher public debt after the pandemic.

NatWest

Asia remains the big relative winner in the crisis. We remain bullish Asian FX in the first half of 2021. China's credit cycle has peaked, though. Brazil has much more growth momentum than India heading into 2021.

Pictet

The growth gap between emerging and developed markets will widen further to the benefit of both developing world equities and debt, thanks in a large part to China.

Pictet

Chinese stocks should be among the leaders next year. Support will come in the form of continued stimulus from Beijing.

Principal Global Investors

Our long-standing preference for US large cap and technology stays, though we have been allocating more to cyclical exposures like small-caps and emerging markets. We shifted Japan to an overweight to play cyclicality within developed markets. Our preference for onshore China is toned down.

CYCLICALS

Amundi

Equities will likely have a better risk-return profile than high yield in a phase of mild recovery and earnings re-acceleration in 2021. Investors should add exposure to cyclicals stocks, quality value and post-Covid-19 ESG themes.

Barclays

European equities can continue to recover in 2021 as earnings bounce back from depressed levels this year, even as valuations normalize from high levels. Europe has benefited after the vaccine news from the rotation into cyclicals and value, a trend we think can continue over the coming quarters.

BCA Research

Global stocks should enjoy a robust advance in 2021, even if the market's gains will be smaller and more volatile than from March 2020 to today. We favor cyclical versus defensive names and value stocks relative to growth stocks. As a corollary, we prefer small cap to large cap and foreign DM-equities to US equities. We are neutral on EM equities due to their large tech sector weighting.

BCA Research

While we like both Europe and Japan, the latter stands out for 2021. Japanese stocks have particularly large allocations to the most attractive deep cyclicals (industrial and consumer discretionary equities) and are very cheap.

BlackRock Investment Institute

We have downgraded investment grade credit to underweight. We see little room for further yield spread compression and favor more cyclical exposures such as high yield and Asia fixed income.

BlackRock Investment Institute

The pandemic has added fuel to pre-existing structural trends such as an increased focus on sustainability, rising inequality within and across nations, and the dominance of e-commerce at the expense of traditional retail. We prefer sustainable assets amid a growing societal preference for sustainability. We take a barbell approach, favoring tech and healthcare as well as selected cyclical exposures.

BNP Paribas

In equities, we like rotation into cyclical and value stocks from growth, and favour short volatility positions.

BNP Paribas

In emerging markets, we favour going long EM currencies—particularly the cyclical ones—against the dollar, and expect a rotation to high yielders to gain momentum in the first quarter.

Citi

Citi Private Bank

Emerging markets, from Southeast Asia to Latin America, are mispriced on an historical basis. So, too, are cyclical industries like banks and energy companies. Around the globe, small- and mid-cap companies are still undervalued. And within the alternative investment marketplace, private equity investors and hedge funds alike are still able to buy assets more cheaply—sometimes much more cheaply—than prior to the pandemic.

Credit Suisse

Consistent with a typical recovery, banks should benefit from improving credit conditions, increasing transaction volumes, and a steepening yield curve. The group is adequately reserved, likely resulting in a greater return of capital. Sector valuations are extremely cheap and estimates conservative for the group as a whole.

Credit Suisse

DWS

Equity markets have more room to grow; overweight for Asia ex Japan. Earnings recovery based on vaccine arrival and "back to normal" by end of 2021. Preferences: Overweight in technology and cyclicals, focusing on growth style; climate technology to benefit from rising climate commitments.

Evercore ISI

Negative real rates will continue to define the shape of asset price gains over the coming months. Commodity prices are biased higher as are cyclical sectors and emerging markets.

Evercore ISI

As the outlook for global economic activity continues to improve, cyclical leadership should remain firmly in place. Though it remains unclear if global growth will break out of its decade long range and spur a long term recovery of value factors, earnings risk, financial leverage and price volatility should continue to outperform growth and momentum factors next year.

Franklin Templeton

We believe the cyclical and value-oriented sectors most severely impacted by the pandemic shutdowns look the most attractive. We expect the greatest increases in earnings growth will occur in these areas, as they will benefit from easier year-over-year comparisons and improving sentiment. The market has already responded to this anticipation for improvement and should continue to do so.

Franklin Templeton

Investors should find opportunities across the lower-quality segments of the corporate credit market, namely among BBB, BB, and B-rated bonds. Sectors that have a more cyclical tilt, like autos and mining also look attractive as we are heading into 2021. These cyclical sectors should see marked improvement as the economy rebounds from the lockdowns.

Franklin Templeton

Euro investors should consider looking toward more developed emerging market currencies, particularly those with commodities or exports exposures that stand to benefit from a cyclical upturn as the global economy recovers.

Franklin Templeton

A more balanced market should lessen the index concentration of mega cap growth stocks and we expect the equally weighted S&P 500 Index will outperform its market cap weighted counterpart in the year ahead.

Franklin Templeton

Goldman Sachs

Structural under-investment in commodity-producing sectors over many years has meant that even the faltering recovery so far is generating a deficit in major commodity markets with inventories drawing. Given that inventories are drawing this early in the cycle, we see a new bull cycle for commodities emerging in 2021 as demand recoveries meet restrained supply.

Goldman Sachs

While there are always risks when it comes to EM assets, 2021 could be the year when it may be equally important to ask "what could go right for EM?" Across global markets, EM assets embed most tangibly a combination of cyclicality, commodity exposure, China sensitivity and pockets of deep value, all of which could be in favor.

Goldman Sachs

JPMorgan Asset Management

Earnings should rebound but overall US equity returns may be constrained by high valuations. A cyclical rebound should produce at least a temporary rotation from growth to value.

JPMorgan Asset Management

While the coming year will likely be characterized by an ebb and flow between growth and value, it seems reasonable to argue that more cyclical assets will outperform.

JPMorgan Asset Management

US stocks can see mid-single digit gains at the index level, but there will likely be a greater opportunity beneath the surface. We still like growth stocks in the long run, but the clouds do seem to be breaking over cyclicals and small caps as we round the bend into 2021.

JPMorgan Asset Management

The Covid-19 shock has created a better entry point for investing in the global recovery and positioning for the next cycle's global themes. The MSCI ACWI ex-US discount to the US now sits at 23% versus the 20-year average discount of 13% (measured by the forward price-to earnings ratio) and provides a 2.8% dividend yield compared to 1.7% for the S&P 500.

JPMorgan Asset Management

Depending on risk tolerance, investors may consider rotating into international assets, though it should be said that until the pandemic is over, the US dollar could maintain its strength.

JPMorgan Asset Management

When looking overseas, European and Japanese markets should benefit from the cyclical upswing, while emerging markets, especially in Asia, will contribute to long-term portfolio growth.

Lombard Odier

With the vaccine news, cyclical stocks, small caps and industrial Europe are more compelling.

Neuberger Berman

Pictet

Pimco

We remain overweight equities and have added selective exposure to more cyclically oriented sectors including industrials, materials, semiconductors, housing, and consumer durables. We favor US equity markets given higher profitability and growth characteristics, and are constructive on Japan and select emerging markets, which should benefit from a cyclical recovery.

Principal Global Investors

Societe Generale

TD Securities

Industrial metals are well positioned to benefit from the cyclical upswing early in the new-year, while precious metals could also remain supported by reflation.

UBS

Diversify for the next leg with exposure to global equities, cyclicals with catch-up potential, and long-term winners. Rebalance out of US large-caps and global consumer staples.

UBS

HEDGING

Amundi

Investors should consider allocating a portion of their portfolio to core government bonds, regardless of their valuations, primarily for liquidity reasons in case there are phases of liquidity shortages.

Amundi

In a world of high correlation among risk assets, adding uncorrelated sources of returns may help balance the allocation. Absolute returns approaches, volatility, hedging strategies and gold may help improve overall portfolio diversification, as well as real assets, private markets and insurance-linked securities.

Bank of America

If inflation and 10-year Treasuries are above 2%, the best hedges would be volatility, commodities, commercial real estate and EM. If we get stagnation and Treasuries closer to 0% the best hedges would be cash, yield curve flatteners, utilities and staples.

BCA Research

The dollar bear market is set to continue, and high-beta European currencies will benefit most. The yen remains an attractive portfolio hedge.

BlackRock Investment Institute

Private market exposures are one way to pursue portfolio resilience with a sustainable lens.

Citi Private Bank

Fixed income portfolios should reflect the best yield opportunities across the globe. Do not expect the same diversification value from fixed income portfolios.

DWS

Negative real yields and potential risk-off moves make gold more attractive, price could be pushed further.

Fidelity

Being truly diversified in 2021 may require looking beyond traditional asset classes to alternatives, currency pairs and long-volatility strategies—and to real estate for income.

Fidelity

Commodities, currencies and use of private markets exposures, where the risk taken is potentially better rewarded, can help diversify risk and boost returns if the recovery is uneven - especially if developed market government bonds wrong-foot expectations and behave more like a liability than an asset within traditional asset allocation frameworks.

Fidelity

"Long volatility" strategies are explicitly designed to generate positive performance during periods of heightened market volatility. We believe they have an important long-term role to play in diversified portfolios, and 2021 is likely to throw up plenty of opportunities for them to prove their worth.

Franklin Templeton

We believe it is prudent to only partially hedge risk positions resulting in a duration overweight. In essence, include not only some positive "soft" duration (from spread sectors) but also explicit Treasury duration as an insurance policy.

Goldman Sachs

Although we think that equities offer better upside in our central forecast than credit, assets such as cash credit and MBS in the US and corporate credit in Europe—which have direct central bank support—do have greater downside protection in an environment where hedging is difficult.

Goldman Sachs

Should Treasury yields and breakeven inflation pick up from here, as our forecasts imply, the value of both assets as downside hedges may improve relatively quickly.

JPMorgan

Consideration of hedging is worth carrying into 2021, precisely because an emerging consensus is that every standard macroeconomic, political and geopolitical risk will fade as the year advances. High optimism has already contributed to a much broader compression of risk premium than usually occurs this early in an expansion, thus leaving little margin for stumbles.

JPMorgan Asset Management

With returns constrained in traditional asset classes, alternative assets can provide opportunities for income, diversification and downside protection.

JPMorgan Asset Management

Within bonds, investors should continue to position themselves in higher-quality, higher-duration assets for a ballast in portfolios, but should recognize that longer-end yields will begin to drift higher once the remaining slack in the economy is removed, leading to a reversal in this sentiment, perhaps as soon as the back half of next year.

Lombard Odier

To shield portfolios from the unexpected we favor US Treasuries, Chinese government bonds, gold, the yen or put options.

Lombard Odier

Gold prices look vulnerable in our main scenario, but remain a hedge against tail-risk events in the short run.

Neuberger Berman

Volatility or uncertainty is likely to create windows of opportunity for liquid strategies such as equity long/short, distressed and short-term trading strategies, but also for less liquid strategies such as private equity secondaries, opportunistic credit and structured equity. Idiosyncratic and uncorrelated strategies such as insurance-linked securities and macro trading could help lend stability to portfolios during any periods of increased volatility.

Neuberger Berman

Pimco

Despite low yields, we are modestly overweight duration as a diversifier to our risk-on positioning in equities and credit. The US remains attractive on a relative basis versus other developed markets given the yield advantage. We are also modestly overweight select, high quality emerging market government bonds that may perform well during risk-off events.

Pimco

TD Securities

While gold and other precious metals don't stand out for sharp directio, interestingly precious metals belong to the only asset class where the factors suggest slow but steady gains through each half of the next two years.

TD Securities

We find that adding systematic FX strategies can be an important source of risk-adjusted returns as correlations to other asset classes tend to be very low. In addition, selective portfolio weightings based on FX views, management of hedge ratios and currency overlay strategies can also provide a source of alpha. We look for the dollar to depreciate steadily, which should be embedded in investment decisions.

Vanguard

While future returns for fixed income look low, the recent crisis has reaffirmed the diversification role they play in a portfolio. Investors are encouraged to view bonds from a risk-mitigating perspective.

Vanguard

Wells Fargo

Investors should gravitate toward hedge fund and private capital portfolios that are more focused on themes arising out of the Covid-19 crisis. We continue to favour equity hedge but anticipate a favorable environment for relative value and event-driven strategies.

ESG

Amundi

AXA Investment Managers

An end to the pandemic, ongoing policy support and a focus on green investment should all contribute to a brighter outlook. Equities should benefit.

AXA Investment Managers

In the field of investing, the proliferation of environmental, social and governance factors and impact funds is unlikely to be halted.

BlackRock Investment Institute

Sustainability is a key component of our views as we see a tectonic shift to sustainable assets playing out over decades. Contrary to past consensus, we expect this shift to help enhance returns.

BlackRock Investment Institute

Private market exposures are one way to pursue portfolio resilience with a sustainable lens.

BlackRock Investment Institute

BNP Paribas

2021 will also be a year of green recovery and sustainable finance, culminating in COP26 in November as a milestone in the transition to a low-carbon future. We expect the year to be marked by increased transparency in climate objectives and disclosures of corporates and financial institutions, as well as a rapid acceleration in sustainable products and investment. We think this will create significant opportunities.

Citi Private Bank

Environmental, social and governance solutions will direct capital to companies whose actions are consonant with values that will make the world healthier.

Citi Private Bank

Columbia Threadneedle

This environment will favor long-duration assets and durable growth companies that keep grinding higher because they have all the characteristics we look for in a business: sustainable returns driven by a sizeable moat, a high Porter's Five Forces score, strong environmental, social and governance credentials and sustainable competitive advantage.

DWS

ESG will continue to play an increasingly important role in investing.

DWS

Fidelity

Climate change looks set to be the key sustainability priority for 2021. Companies that behave sustainably outperform those that don't.

Fidelity

ESG and climate funds have outperformed conventional funds throughout 2020 and are likely to continue to do so in 2021 following President-Elect Biden's declared intention that the US re-join the Paris agreement and China's ambition to get to net zero carbon emissions by 2060.

Franklin Templeton

We expect many of the drivers of strong returns for stocks with strong sustainability characteristics to continue in 2021. Renewable energy will enjoy long-term secular growth as the world transitions to a less carbon-intensive economy.

Goldman Sachs

Commodities themselves may be the most efficient expressions of our bullish commodity forecasts, and leveraging recent work on ESG commodity investing, our commodities team argue for a long position in the enhanced S&P GSCI along with a CO2 offset position by going long EU Allowance credits.

HSBC Asset Management

Sustainability has taken a central role for economies and corporates. Taking climate change for example, investors may need to prepare themselves for a transition to net zero emissions across economies faster than expected.

Lombard Odier

We favour companies developing new technologies while working to tackle climate change, preserving nature and increasing bio-diversity.

NatWest

Green finance is going macro in 2021. Governments are making big commitments and will issue bonds to back them. The global green bond universe will grow another 60% in 2021. Central banks and regulators will play big supporting roles.

Pictet

Societe Generale

The US re-joining the Paris climate accord should drive even faster and deeper greening of portfolios: flows into ESG Funds should continue.

Societe Generale

The global green transition theme will continue to gather momentum, in our view, and provides opportunities in all regions.

Societe Generale

UBS

Investors with an eye on the long term will need to add exposure to the disruptors making our world more digital and sustainable, most notably in greentech, fintech, and healthtech, and among the beneficiaries of 5G rollouts.

REGULATION

AXA Investment Managers

The large providers of online services and the technology that supports them will, in all likelihood, continue to deliver superior growth. They will also continue to be a magnet for regulatory and political attention. However, the investment case remains strong.

Bank of America

The 2020s will deliver "peak capitalism" in the shape of taxes, regulation, redistribution, and low and volatile growth. We say secular returns of 3-5%, volatile and clustered across asset classes; optimal allocation is 25/25/25/25 in bonds/stocks/cash/gold.

Goldman Sachs

We highlight four risks for 2021: (1) Second-wave risks and inoculation disappointments, (2) Concentration, regulation, taxation, (3) Inflation and rates volatility and (4) Policy uncertainty.

EUROPE

Bank of America

After -7% this year, we expect the euro area to grow 3.9% and 2.7% in 2021/22—an incomplete recovery leaving scars and imbalances. The ECB will be moving into yield-curve-control of sorts.

Barclays

BCA Research

BlackRock Investment Institute

BMO Global Asset Management

Our strategy is to be ready to overweight Europe but only after we see clear evidence of outperformance on the economy and earnings. The purchasing managers' indexes will be important in this regard.

BNY Mellon

We find significant undervaluation in AUD, GBP, JPY, CAD, TRY, RUB, BRL and MXN. Fiscal room and vaccination should be more important, however, supporting China, Mexico, Russia and the euro area.

Columbia Threadneedle

DWS

Goldman Sachs

Over the medium term, we expect European equities to benefit from the global rally and EUR to participate in a broad dollar decline.

Goldman Sachs

Unlocking the upside in European assets requires higher domestic and global growth, and markets will likely question that upside until local outbreaks ease.

Goldman Sachs

ING

JPMorgan

Bund yields are expected to trade in a range in early 2021 and then gradually move higher in the second half reaching -30 basis points in the fourth quarter. Italy and Spain are the top strategic overweights in the periphery. In Scandinavia, yields are expected to grind higher in the second half.

JPMorgan

In Euro high yield, a vaccine roll-out removes tail risks for default rates. Meanwhile, central banks continue to suppress risk premia, forcing more investors into the asset class. The 2021 default forecast is lowered to 2%, and spreads are projected to tighten 50 basis points to 350 basis points, for a 5% return.

JPMorgan Asset Management

When looking overseas, European and Japanese markets should benefit from the cyclical upswing, while emerging markets, especially in Asia, will contribute to long-term portfolio growth.

Lombard Odier

With the vaccine news, cyclical stocks, small caps and industrial Europe are more compelling.

NatWest

Peripheral spread compression still has some modest room to go. Italy provides the best value in our fundamental framework. Net supply pressures will shift into core markets in 2021 and Italian politics won't get in the way.

Nikko AM

We expect the Euro Stoxx index will rise to 438 at end-June and FTSE to 7,500, which translates to returns of 15.1% (unannualized from our base date) for MSCI Europe through then in dollar terms. We project even more remarkable returns through December at 25.7%.

Nikko AM

We continue to expect particularly impressive returns in Asia Pacific including Japan, but now we add Europe for such too, while the US should experience lower but still healthy returns.

Societe Generale

Societe Generale

We raise the equity weight in our portfolio to 62% (from 49%)—by reducing corporate bond exposure—but we discriminate among investment themes and regions. We continue to recommend diversification out of US Big Tech into notably EM equities—not only China. We increase our overweight position on Japan equities to maximum weight (10% of the portfolio) and raise our European exposure.

JAPAN

Bank of America

Japanese growth is poised to slow in the near-term due to the Covid-19 third wave. But the recovery has room to run in 2021. Weak inflation means that BOJ policy is frozen for the foreseeable future.

BCA Research

BlackRock Investment Institute

Columbia Threadneedle

Japan has significant exposure to industry within its market—particularly to Chinese investment—so we see an improved outlook for Japanese equities going into the recovery, even if Japan's demographics do continue to create a real headwind.

Columbia Threadneedle

JPMorgan

In Japan, 10-year yields are projected to rise modestly to -0.1% by the fourth quarter.

JPMorgan Asset Management

When looking overseas, European and Japanese markets should benefit from the cyclical upswing, while emerging markets, especially in Asia, will contribute to long-term portfolio growth.

Nikko AM

We continue to expect particularly impressive returns in Asia Pacific including Japan, but now we add Europe for such too, while the US should experience lower but still healthy returns.

Nikko AM

We expect TOPIX to rise substantially to 2,050 at end-June and 2,100 at year-end, for total unannualized returns of 14.6% in dollar terms and 16.3%, respectively, from our base date through those periods. Meanwhile, the Nikkei should hit 31,000 and 31,800, respectively. These are higher returns than the US, so Japanese stocks should still be overweighted by global investors, and are obviously attractive for domestic investors.

Pictet

Japan is poised to benefit from its neighbor's strong economic recovery, as well its own effective response to the pandemic. The country's stock market, which has a higher relative weighting than many other markets in cyclical sectors such as industrials and autos, is well placed to capitalize on a revival in global trade and capital spending.

Pimco

Principal Global Investors

Societe Generale

With fiscal policy expanding, monetary policy remaining loose and an ambitious reform and regulatory agenda, the conditions appear in place for further Japanese equity upside.

ROTATION

Bank of America

We say 2021 reopening/recovery/rotation means outperformance of commodities over credit, commercial real estate over housing, high yield over investment grade, EM, Europe, and Asia over the S&P 500, small caps over large, and value over growth.

Bank of America

The rotation is likely to be disorderly with moments of doubt until unambiguous signs of corporate animal spirits (higher demand for money and capex), but these moments should be used opportunistically.

Barclays

BCA Research

BMO Global Asset Management

Despite a short-term reversal, we recognize that long-term secular trends are at work here and we remain relatively neutral on both value versus growth and small versus large.

BNP Paribas

In equities, we like rotation into cyclical and value stocks from growth, and favour short volatility positions.

BNP Paribas

In emerging markets, we favour going long EM currencies—particularly the cyclical ones—against the dollar, and expect a rotation to high yielders to gain momentum in the first quarter.

Citi

Citi Private Bank

The mispricing of securities caused by Covid will be reversed. The extent of the mispricing is underappreciated and presents an "alpha creation" opportunity that seldom appears broadly in markets.

Citi Private Bank

Although equity market indexes in the US and China are near all-time highs, the dispersion of performance within those markets reflects which industries were pandemic beneficiaries and which suffered. Investors infrequently get an opportunity to exploit "mean reversion," the idea that when a crisis ends, the relative pricing of securities will return to more typical relative valuations, but they can do so now.

Citi Private Bank

Columbia Threadneedle

Fidelity

Equity valuations are stretched; there are opportunities beneath the surface, but watch out for sudden rotations.

Franklin Templeton

We recently have added to specific positions in both the reopening sectors in high-yield and some areas of structured products. Going forward, we feel markets will extend their optimism more broadly in these areas. We intend to rotate away from more fully valued investment-grade and high-yield securities very selectively into those aforementioned sectors.

Franklin Templeton

Goldman Sachs

While we see scope for "value" outperformance around a vaccine-driven growth upgrade, it may take longer for a more persistent shift here to emerge.

JPMorgan

JPMorgan Asset Management

Earnings should rebound but overall US equity returns may be constrained by high valuations. A cyclical rebound should produce at least a temporary rotation from growth to value.

JPMorgan Asset Management

NatWest

A vaccine should close the gap between weak consumer confidence and strength elsewhere. This should see a rotation into the 2020 laggards, including oil and oil-linked currencies; autos, real estate and banks in credit.

Pictet

Principal Global Investors

Stretched valuations for many companies suggest market leadership is ripe for a rotation. Indeed, having outperformed for the last decade, growth stocks are indisputably expensive, rendering them vulnerable to a reversal in performance.

Societe Generale

TD Securities

DOLLAR

Barclays

Rates and FX markets are unlikely to rock the risk-on boat. We expect a drift higher in core fixed income. Reports of the dollar's demise are overstated, but EM FX should outperform at the start of the new year.

Barclays

We think the prospect of sharp dollar weakness is overblown, though we expect EM FX to do well for the next few months. Despite its rally, we think the CNY still offers the best risk-adjusted returns in the EM complex, with decent carry backed by a strong economy.

BCA Research

The dollar bear market is set to continue, and high-beta European currencies will benefit most. The yen remains an attractive portfolio hedge.

BCA Research

BlackRock Investment Institute

BMO Global Asset Management

BNP Paribas

In FX, we remain structurally bearish on the dollar with the high-beta GBP and NOK our top picks.

BNY Mellon

Our positioning and holdings framework show broad desire to sell the dollar and buy international equities.

Citi

DWS

We maintain a target of 1.15 for EURUSD. The dollar will act as a safe-haven currency again. We expect a much better environment for EM currencies in 2021, although the recovery will likely be uneven.

Fidelity

We expect dollar weakness will persist, amid further borrowing to fund the fiscal deficit.

Goldman Sachs

The dollar appears meaningfully overvalued and investors are overweight US assets. High valuations, negative real rates and a recovery of global growth should weigh on the currency.

Goldman Sachs

Near term gold may be range-bound, but we maintain our $2,300 target, supported by declines in five-year US real rates and a weaker dollar.

Goldman Sachs

Currency markets will likely take signals from front-end real yields, with more deeply negative real yields coinciding with dollar weakness against most crosses (including gold). Although higher long-end rates could put upward pressure on the dollar against certain crosses, the dollar index has historically been negatively correlated with the slope of the US real curve.

Goldman Sachs

Over the medium term, we expect European equities to benefit from the global rally and EUR to participate in a broad dollar decline.

ING

2021 will be the year that FX markets, diverted by two years of President Trump's protectionism and then by one year of the Covid-19 crisis, get back on track as the gravitational pull of the dollar fades. We forecast the dollar to broadly decline in 2021, generally by 5-10% against most currencies.

ING

We are constructive on emerging markets; a weaker dollar, only mild rises in core rates and robust inflows present solid underpinnings. But, when collective deficits are at 10% of GDP, we need to pay attention to future debt dynamics. Not in focus right now, but likely will become a focus in the coming years.

JPMorgan Asset Management

International equities should benefit from a falling dollar and lower valuations relative to the US, with the more cyclically geared regions outperforming.

JPMorgan Asset Management

Depending on risk tolerance, investors may consider rotating into international assets, though it should be said that until the pandemic is over, the US dollar could maintain its strength.

JPMorgan Asset Management

Lombard Odier

The dollar remains overvalued and still includes some of the risk factored into US electoral chaos. We expect more weakness in 2021.

Mizuho

A conspiracy of exuberance, exceptional US monetary largesse (low US rates/yields and Fed QE at a pace of some $120 billion per month) alongside sharply widening "twin deficits" make for a weakening dollar theme.

Mizuho

The speed and depth of the dollar's decline may moderate after an almost 7% drop in the dollar index in 2020 (down ~13% from its March peak). Especially given record speculative short positions and already depressed real Treasury yields. Moreover, lingering uncertainties mean that episodes of latent volatility in the Greenback should not be discounted if safe-haven demand is triggered.

Morgan Stanley

Better global growth and the availability of a Covid-19 vaccine cause the dollar to weaken about 4% by end-2021 and that weakness will be frontloaded. NOK, SEK, NZD, AUD and EUR should outperform.

Morgan Stanley

NatWest

Pictet

When it comes to currencies, 2021 doesn't promise to be a good year for the dollar.

Pictet

Pimco

After a substantial multiyear rally, the US dollar appears rich versus other alternative "safe haven" currencies such as the euro and yen, which have become increasingly attractive. We are also modestly overweight select EM currencies.

Robeco

The constructive environment for risky assets benefits local currency emerging debt as well. There is ample room for emerging currencies to recoup sometimes heavy losses against the dollar. But since we see the euro rising against the dollar as well, currency gains in euro are less outspoken.

Societe Generale

TD Securities

Risk assets may have a tougher second half of 2021, precious metals have the most consistent positive signal over the next two years, and the dollar could see more range-trading in the back half of 2021 without further policy support. A stronger reflation trade would likely see credit curves steepen, driving investors from long-end investment grade credit into Agency and EM hard-currency credit, as well as EM equities.

TD Securities

Expect the broad dollar to weaken again next year but not at the same pace and magnitude seen this year. A big part of the 2021 FX rotation would focus on the shift towards stronger EMFX appreciation.

TD Securities

UBS

Initial phase of the dollar down-cycle should see decent gains for EUR, GBP, CAD, RUB, CNY.

UBS

STEEPENING

Barclays

While yields should drift higher given the improving growth picture, we believe any sell-off is likely to remain capped with the market unlikely to pull rate hikes forward very much. Instead, we expect investors to price in higher rates further out in the future, putting upward pressure on 5y5y rates.

Barclays

BMO Global Asset Management

Citi

The front-end yield complex should grind lower as reserves increase and bill supply declines.

Goldman Sachs

We forecast modestly higher yields across most of the G10 for year-end 2021. For 10 year bonds: US 1.3%, Germany -0.4%, Japan 0.10% and UK 0.5%. Bond risk premia should drive much of the repricing—we expect yield curves to steepen.

Goldman Sachs

JPMorgan Asset Management

NatWest

Societe Generale

As the yield curve continues to steepen in Europe and the US, we stay zero weighted on Treasuries and core area bonds but keep exposure to peripheral bonds in the euro area. The new, key global portfolio component is Chinese government bonds that look attractive due to their significant real yield differential over Treasuries.

TD Securities

The 10-year Treasury should stay below 1% for most of the year. The curve should steepen in the second half as inflation risk premium rises and the market prices in post-Covid vaccine normalization.

UBS

Vanguard

EARNINGS

BMO Global Asset Management

We continue to have a favorable view on equities for 2021 due to our expectations for a vaccine-driven economic recovery and revitalized global corporate earnings

BMO Global Asset Management

Our strategy is to be ready to overweight Europe but only after we see clear evidence of outperformance on the economy and earnings. The purchasing managers' indexes will be important in this regard.

Citi

Valuation and earnings revisions appear stretched with a possible peaking, which do not bode well for share prices. We believe that the Street has pulled forward S&P 500 returns into the second half of 2020, leaving 2021 in a 3,700-4,000 trading range, with a year-end target of 3,800 using 10 different approaches.

Credit Suisse

We are initiating our 2021 S&P 500 price target of 4,050, representing 12.2% upside from current levels (10.8% annualized). This is based on EPS of $168 in 2021 (previously $155), and $190 in 2022 (previously $170).

Credit Suisse

We believe the fundamental case for tech remains compelling with faster sales growth, superior margins, robust FCF, and low leverage, and recommend a positive bias toward this group on an ongoing basis.

Credit Suisse

Evercore ISI

Supported by increasing earnings, rising cash return and improving investors sentiment, we forecast the S&P will end 2021 around 4110.

Evercore ISI

Fidelity

Uncertainty over vaccine timings, the effects of monetary and fiscal stimulus, as well as earnings growth, may cause pockets of market volatility in 2021.

Franklin Templeton

We have a moderately positive view for equities in 2021. Investor sentiment and earnings forecasts for the first half of 2021 have become a bit exuberant, which will likely lead to consolidation and perhaps a slight correction early in the new year. Longer term, markets should head higher as the economy normalizes with the distribution of a vaccine and adjustment to a new presidential administration in the US

HSBC Asset Management

Tech companies, which have reaped the rewards of lockdowns and social distancing, will continue to grow their revenues and profits as the shift to online appears here to stay. The healthcare sector, which took centre stage amidst the public health crisis, will likely continue to see success backed by strong expected earnings growth in 2021.

JPMorgan

We see the S&P 500 reaching 4,000 by early next year, with a good potential for the market to move even higher (~4,500) by the end of next year. Our 2021 EPS estimate is $178 (consensus $168.89) and 2022E EPS is $200 (consensus $196.71).

JPMorgan Asset Management

Earnings should rebound but overall US equity returns may be constrained by high valuations. A cyclical rebound should produce at least a temporary rotation from growth to value.

Morgan Stanley

Across regions, we see 25-30% earnings-per-share growth and double-digit total returns through end-2021. We are overweight cyclicals and underweight defensives across regions, and expect US small-caps to outperform large-caps. We think that EM and Asia-Pacific ex-Japan equities will lag DM slightly, but upgrade India to overweight. We see the S&P 500 at 3,900 by end-2021.

Pictet

Our models suggest that global equities' earnings multiples could contract by as much as 15% next year, but this is likely to be more than offset by an approximate 25% surge in corporate profits.

UBS

We expect the wide-scale rollout of a vaccine in the first half of 2021 to enable global output and corporate earnings to return to pre-pandemic highs by the end of the year.

UBS

US mid-caps and industrials should see higher earnings growth than US large-caps.

COVID

Bank of America

Citi Private Bank

Goldman Sachs

While we see scope for "value" outperformance around a vaccine-driven growth upgrade, it may take longer for a more persistent shift here to emerge.

Vanguard

Both monetary and fiscal policy will remain supportive in 2021, but the primary risk factor is the pandemic's fate and path.

FISCAL STIMULUS

Goldman Sachs

With lower likelihood of substantial upward pressure on rates from a large fiscal impulse, that may mean that yield-seeking once again becomes a dominant theme among investors—favoring spread products in both DM and EM, receivers in steep EM curves and dividend-yielding and "long duration" stocks.

MONETARY POLICIES

ING

Money markets will remain under the spell of high excess liquidity levels. This means ever lower Euribor fixings and commercial paper rates. We do not anticipate the ECB will cut its policy rate, but cheaper liquidity injections are on the cards.

POLICY

Bank of America

After -7% this year, we expect the euro area to grow 3.9% and 2.7% in 2021/22—an incomplete recovery leaving scars and imbalances. The ECB will be moving into yield-curve-control of sorts.

Goldman Sachs

BONDS

Goldman Sachs

LIQUIDITY

Goldman Sachs

Both the funding and liquidity/microstructure risks that were such a powerful part of the downdraft in March are unlikely to be revisited to the same degree, even if the outlook deteriorates.

TECH

Societe Generale

ASIA

Societe Generale

Disclaimer: This article first appeared on B loomberg.com

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