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After a year of unprecedented stimulus measures and government intervention in the economies, the level of debt is higher than during the financial crisis of 2009. We are heading to a world characterized by low inflation, low growth and low interest rates. It’s an environment that doesn’t attract traditional value investing, writes William Davis, Threadneedle’s chief investor in the asset manager’s Outlook 2021.
“Sustainable in the long term”
In such a world, it’s important to find long-term sustainable assets, he says. To qualify as sustainable in the long term, growth companies must keep growing even during this continuation of the corona epidemic.
Threadneedle has studied different specific equity markets, both short and long term, before creating the investment strategy for 2021. For example, the UK is clearly cheaper than other markets in the world, is one of the results . UK equities can benefit if the recovery is viewed in a nine to twelve month perspective.
Europe and Japan are also in the same situation as the United Kingdom, says William Davis, who says that the really interesting markets in the long term next year are the United States and Asian emerging markets.
“It gets worse before it gets better”
Vaccine development has soon gone so far that the vaccine can be used on a large scale. So one of the big questions now will be what we know, versus what we don’t know, about the effect and impact of various vaccines.
For example, we now know that three different vaccines have been published, which are around 90 percent efficient, William Davis notes that we don’t know exactly what distinguishes these three different vaccines. We also do not know when the pandemic will seriously diminish and many countries will continue to close. “It gets worse before it gets better,” writes William Davis.
The question is what the recovery will really be like. In April, William Davis admits, Threadneedle’s analysis was that the recovery would be U-shaped and that the level of economic activity would return to its previous level only towards the end of 2022.
Back to Previous Levels Fall 2021
But now it seems that recovery comes sooner, given the efficiencies of the various vaccines. This could mean that we reach economic levels as before the pandemic in less than a year, in the fall of 2021, writes William Davis.
Therefore, as investors, we are currently faced with critical decisions regarding whether to continue investing in companies that will survive the pandemic and that will generate income when economies restart.
Since the pandemic began and was followed by closures, consumers have started shopping online very quickly and easily to a much greater degree than before. The e-commerce trend has gotten a real boost. If we also add that many people have accumulated savings capital because consumption has fallen dramatically during the pandemic, there could be a “potential explosion of grounded demand” in 2021, argues William Davis.
Sectors that do not have the strength to reach the previous level
Threadneedle’s bottom line is that experiences and travel get the most growth when economies reboot, not consumer goods that are trending for a couple of years.
But it may be a mistake to think that people will travel a lot and stay in hotels as long as they did before the pandemic, Davis believes. The rapidly evolving habit of using digital meetings instead of traveling has stopped.
In that case, it would mean that the leisure sector and the travel and hotel industries may not be successful in returning to pre-pandemic levels, Threadneedle writes.
