In this new quarterly publication, Daniel Morris, our chief market strategist, looks ahead to assess the prospects for global equity markets.
As the year gets underway, equity investors, quite rightly, remain resolutely focused on the positive, medium-term outlook for corporate profits rather than the near-term challenges.
With economies globally in a synchronised recovery, higher earnings seem almost assured; the concern is rather whether the currently expected level turns out to be too optimistic and the market multiple placed on those earnings unsustainably high.
In our view, the economic recovery and rebound in inflation will drive a rotation into value and small-cap stocks. While this should allow value to recover some of its underperformance of recent years, we nonetheless expect quality/growth to retain its dominance.
In 2020, investor sentiment swung from excessive despair to enthused optimism. As a result, valuations for some sectors and markets leave little margin for error. While this will likely limit returns this year, we would look to any pullbacks as an opportunity to add risk.
In our opinion, the recovery from the coronavirus lockdowns has further to run. Further fiscal stimulus, low real yields, and an eventual return of economic activity to pre-pandemic levels promise more upside for equities.
We favour those markets and sectors that should benefit from reflation:
- value
- cyclicals
- small caps
- US and emerging market equities.
Read our latest quarterly equity outlook
