CIO Outlook 2021: A fresh start

After contending with the terrible human and economic toll of a pandemic, as well as market volatility reminiscent of the financial crisis, investors could well be forgiven for wondering anxiously: what could 2021 possibly have in store for us?

We cannot, of course, predict the outcome of risk events already on the horizon, let alone identify any black swans fluttering menacingly. But based on our research and the available information, we can sketch out the contours of next year’s macro and market landscape.

Pleasingly, we believe it is one in which investors can thrive, albeit with the right approach. In our 2021 outlook, we offer views from across LGIM that inform this optimism, grounded in our assessment that even though the world economy’s immediate prospects may have darkened, 2021 could still be a strong year for growth. Other key points include:

• The bull case for equities at this point in the cycle

• How a Biden administration could create ripples in the bond market

• The role of cashflow-driven investing in tackling market gyrations

• Why 2021 could be a pivotal year for battery technology and renewable power

• How China’s financial sector is opening up potential opportunities for investors

As we noted in our autumn update, COVID-19 has accelerated a number of long-term investment themes that were previously underway. The global energy transition is an obvious example, as the shock of coronavirus has focused attention on the looming threat of climate change just as it has shaken up carbon-intensive industries.

At the same time, environmental regulations are likely to tighten under the incoming US administration, whose climate policies will have a worldwide impact. The changing of the guard in Washington, meanwhile, brings us to another long-term trend: populism.

While Donald Trump lost the 2020 US election, the result was not a repudiation of everything he stood for. We will need to continue monitoring the way our politics have changed forever as a result of the forces that propelled the outgoing president, and other populists around the world, to power and sustained them in office.

It’s also clear that many Americans continue to view China unfavourably, despite the election result, with the uneasy relationship between the world’s two largest economies likely to be a key driver of geopolitics for the foreseeable future.

In Europe, even though a UK-EU trade deal now looks probable, much else remains to be decided after the Brexit transition period ends. Expect the UK’s long divorce from the bloc never to stray too far from the headlines, or the radar of investors, next year.

And while we look forward to a post-pandemic world, we are still living with coronavirus and the dramatic steps taken to contain it. As such, expect further debates over fresh monetary and fiscal stimulus to be a prominent feature of the coming months – even as we contemplate the ultimate cost of such measures.

Despite these challenges, we see next year as a time for healing – for the economy, environment and society – in which we can play an important role on our clients’ behalf, by seeking to create a better future through responsible investing.