As 2020 winds to a close, State Street Advisors yesterday released its 2021 outlook for shares (and other asset classes).

The global asset manager notes markets were mostly resilient in 2020 and it believes this is likely to continue as a medical resolution to the crisis progresses.

However it admits continued rising COVID-19 infections will pose challenges to the 2021 outlook for shares.

Chief portfolio strategist Gaurav Mallik says overall the equity markets are a good place to be.

“In general, we favour equities compared with other asset classes because they continue to offer relatively attractive excess returns,” he said.

 

The pressure is on earnings

However, Mallik warned the rally was driven mainly by stimulus-fuelled expansion rather than earnings.

“For equity markets to continue to perform, the pressure is on earnings to come through,” he said.

“Although governments could manage to deliver larger than expected stimulus packages, we see limited room for additional stimulus.

“Quantitative easing measures will not be enough.”

He noted that earnings expectations are beginning to reflect the impact of COVID-19.

 

2021 outlook good for growth and quality assets

Mallik said State Street is favouring what he calls growth and quality assets to deliver on earnings.

“Growth companies’ contribution to profits has been disproportionately higher than their overall market capitalisation and earnings growth is coming through to justify their valuations,” he said.

More generally, Mallik advises investors to keep an eye on pent up consumer spending returning with a vengeance in 2021.

“Consumer spending globally has already shown a sharp recovery since its low point in April,” he noted.

“Despite recent job losses, stimulus efforts have supported household incomes, while increased savings have bolstered household assets.

“Although some areas have reimplemented mobility restrictions in response to rising COVID-19 rates, these have mostly stopped short of the blanket lockdowns that took shape in the spring of 2020.

“As economic activity resumes, and demand for goods and services revives, we believe the consumption theme is on track to outperform in 2021.”

However Mallik argues a more comprehensive uptick in inflation won’t materialise until 2022.

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