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“With vaccines arriving in the nick of time, the economy may face its best-case scenario in 2021″ – BetaShares Chief Economist, David Bassanese, shares his outlook for markets in 2021.
According to BetaShares Chief Economist, David Bassanese, equity markets would likely be ending the year at much weaker levels were it not for the timely arrival of vaccines.
“Despite COVID still raging in Europe and the United States, markets are again looking through the near-term risks to economic growth and focusing on the likely better times in 2021.”
“The vaccine news has come a lot earlier than expected. The fact that it’s arrived now has really changed the situation globally. In Australia, markets are up 10% over the last month due to the vaccine news.”
In what David described as the “most critical issue now facing markets”, inflation must remain low in order to maintain very low interest rates.
“Central banks are promising to keep rates low for 1 to 2 years, which is supporting the economy and financial markets and also provides a ramp for equity prices.”
Compared to typical recessions, this one has been very deep but also very short. In hindsight, this explains why equity markets bottomed as quickly as they did.
Investment themes for 2021
The three major trends globally that David outlined include: the technology sector, quality investments, and the U.S. region.
“Recent global equity trends favour a rotation to so-called ‘value’ parts of the market like energy. However, I see this largely as a temporary unwind of underperformance of value – and outperformance by technology – caused by the COVID shutdowns. Once the dust settles next year, I suspect growth areas like technology will reassert themselves.”
Within Australian equities, David believes that while financials have had a long period of underperformance, they should fall back in line with market tracking.
“We expect that resources and financials will do reasonably well over the coming months. Although in terms of thematics, what we believe will outperform will be infrastructure, as we get through the COVID-19 pandemic.”
“What a year. In terms of all the various scenarios we had prepared for, it’s turning out that we’re close to a best-case scenario with a lot of positives to consider. It’s an encouraging backdrop as we head into 2021.”
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