Outlook 2021 - Seizing the new reality

If you are reading this, then you’ve lived through one of the most volatile periods in market history. The year to come may prove to be as uncertain as the one just gone, but we believe the main themes discussed in this outlook will be the ones to drive the new reality - and the market response to it - in 2021.

First is the role of fiscal and monetary policy in preventing total economic collapse amid lockdowns and in driving the post-pandemic recovery. Second are the potential problems inherent in the record amounts of debt taken on by governments and corporates. These now exceed World War Two levels and have made the market more sensitive to inflation in a world of record low interest rates.

Third is the concern that some valuations reflect abundant central bank liquidity and sector trends accentuated by Covid-19, rather than economic reality. These may suddenly correct when vaccines are rolled out, amid broader market rotations. And finally, there is the extraordinary outperformance of environmental, social and governance (ESG) leaders across equities, fixed income and real estate that looks set to continue amid further shifts towards more sustainable forms of capitalism.

Getting to grips with this new reality will require a deep understanding of its implications for individual companies and the ability to move quickly when asset prices offer value.