The development and use of COVID-19 vaccines, government stimulus packages and the resurgence of a number of recently neglected stocks and sectors points to a likely recovery in the global share market in 2021, according to a boutique Australian investment manager.
Montgomery Investment Management chief investment officer Roger Montgomery said the roll-out of the vaccines had strengthened the case for a global recovery in shares and the development of a number of vaccines would provide confidence to governments and investors to move towards the normality of pre-COVID commercial and social activity.
He suggested while significant gains had already been achieved in share markets since the low point of March 2020, investors could still take advantage of the growth that was yet to come.
“Irrespective however of whether one invested in March or at any time since, we believe the full benefits are yet to be fully realised as the COVID-19 vaccines have significantly strengthened the argument in favour of a global recovery boom in 2021,” Montgomery noted.
He said the ongoing COVID-19 crisis in Europe and North America was still dampening expectations from the market but any shifts there would benefit Australian investors.
“In the northern hemisphere, investors have the optimism about a vaccine but they are yet to experience the emergence from COVID fears. A complete lifting of those fears has the potential to ignite further market gains and keep in mind the US market’s moves has a heavy influence on our own.”
In terms of market sectors, Montgomery recognised some technology stocks are currently ‘priced for perfection’ which would only hold as long as lockdowns remained in place.
“This is not our central thesis and so we believe there is some risk among those technology companies that are relying on a continuation of recent monthly and quarterly growth statistics, fuelled by customers being locked down and working from home,” he explained.
“It is true many display compelling growth, solid free cash flows and attractive margins, but where growth may prove to be cyclical as well as structural, the reporting of slowing growth rates could see some technology companies take time to surmount recent highs.”
Montgomery indicated significant upside with lower risk, was still available in stocks left behind during the COVID-19 crisis and investors who moved away from the ‘pandemic darlings’ may be enjoy better risk-adjusted rewards.
“Cyclical or economically-sensitive stocks are enjoying a reopening-related momentum that could persist for the time being. Of course, the greatest jumps in sequential growth may have already occurred,” he said.
“Income producing companies, particularly those with boring annuity style income streams may be in hot demand post COVID. With central banks committing to low rates for the foreseeable future, global pension funds are on the hunt for attractive acquisitions.”''