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The world’s stock markets have continued to rise despite the pandemic. The reason is mainly the rapid development of the covid-19 vaccine, writes Johann Guggi on the Handelsbanken Marknadsinformation website.
Since November 1, for example, Swedish and European stocks have given the best returns, measured in Swedish kronor, and the krona has strengthened against the US dollar, affecting returns on foreign holdings. But there are warning signs, Guggi believes.
“Gradual return”
“The global economy must gradually return to generating growth without the help of huge stimulus packages. Therefore, next year it will be important that investments and private consumption can take over as the engine of economic recovery so that the stock market continues to rise ”, he writes.
The biggest challenge is whether interest rates go up too fast and too much, with the modification that depends on why interest rates go up.
“Are interest rates rising because economic growth is increasing or due to higher inflation expectations? We consider that the inflation risk is balanced. There is still a large proportion of free resources in the wake of the advancement of the virus. Therefore, we follow interest rates mainly in the US with vigilance, ”writes Johann Guggi.
“Early recovery phase”
However, the main point of the reasoning is that global growth is recovering from the pandemic as more people are vaccinated and restrictions are gradually lifted around the world. At the same time, we are in an “early recovery phase”, but economic activities and the pent-up need for consumption speak in favor of equity markets.
“As the world economy recovers, we believe that companies will be able to maintain, or even increase, their profit margins. This means that earnings expectations for the next few years will likely continue to be revised upward, ”writes Johann Guggi.
However, the stock market has already praised positive economic development to some extent, and large economic stimuli have boosted the stock market during the year, and the global economy should return to generating growth “without the help of huge packages of stimulus”.
“America benefits less”
Therefore, next year it will be important that investments and private consumption can take over as the engine of economic recovery so that the stock market continues to rise, believes Johann Guggi.
When it comes to allocation, Handelsbanken prefers equities over fixed income investments and, within equities, cyclical companies are the most interesting. Sweden and Europe are preferred over the United States, where Handelsbanken has reduced its stakes. The opinion of Japanese stocks is neutral.
“Our assessment is that the US non-equity markets will benefit more from a global recovery. Therefore, we have chosen to reduce our exposure to the US equity market, ”writes Johann Guggi.
