An independent research consulting firm expects growth assets to perform well in 2021 on the back of an economic recovery driven by the release of a COVID-19 vaccine.
“We expect a benign cyclical recovery from a low base of economic activity in 2020, but successful vaccine deployment is critical. While there are risks that relate to the rollout of the vaccine which underpin this economic theme, it is the most likely outcome at the moment,” Evergreen Consultants founder and director Angela Ashton said.
“Based on this theme, in 2021 we see the continuation of growth assets outperforming defensive assets as cash rates stay low and governments continue to have aggressive bond purchasing programs.”
With regard to the types of equities, Ashton predicted value and cyclical stocks are likely to perform better this year.
“Globally if the deployment of vaccines is successful, then Europe and North America should continue to build momentum in the first half of 2021. This should pave the way for a further rotation into value and cyclicals,” she noted.
“This is not to say that growth-style equities are to be avoided. Rather, the stars are aligning for traditional value plays. This will particularly be true if long-term bond yields are able to edge higher as this will have a proportionately larger earnings impact on long-duration growth stocks.”
She noted interest rates are likely to remain low, painting a continued unfavourable outlook for cash and cash-equivalent assets.
“We expect cash rates to remain near zero,” she said.
“As has been the case in recent times, traditional fixed income markets are likely to appear relatively unattractive for some time to come, even if there is no surprise jump in inflation.
“Unless capital and labour becomes structurally unemployed, spare capacity and output gaps are likely to prevail into the foreseeable future.
“As such, our base case is for yields to rise only modestly.”''