One of the great surprises of 2020 was the relative buoyancy of the stock market even as a raging pandemic killed millions and many sectors of the global economy were plunged into recession. And one of the biggest questions facing investors in 2021 is whether global markets can continue their upward trajectory 鈥� or if they might succumb to rising debt loads, continued political and social unrest, or simply a lack of investor confidence.
As part of its The World Emerges: Reuters Breakingviews Predictions 2021 series, Reuters led two recent discussions that covered a wide range of issues, including whether widespread vaccinations would unleash pent-up market demand; the prospects for green technologies; consumer demand for sustainable supply chains; the extent to which companies around the world will embrace socially responsible Environmental, Social, and Governance (ESG) investment criteria 鈥� and, of course, the overall impact of the in-coming Biden administration on the global economy, particularly with regard to China/U.S. relations.
In one discussion, a panel discussion of leading financial experts took up the question of whether the market boom would continue after the COVID-19 pandemic subsides.
A charging green bull?
The general theme of the conversation was a bullish one 鈥� namely that in 2021, unleashed market demand will likely fuel growth in many sectors of the economy (particularly those related to green technology and infrastructure), and consumer demand for more responsible corporate governance will continue to move the guardrails of capitalism toward a more sustainable, equitable future.
One of the biggest market factors in 2021 will be the U.S.鈥檚 re-engagement with the world under the Biden presidency, said Evy Hambro, global head of thematic and sector investing for BlackRock. 鈥淩e-signing up for the Paris [Climate] Accord and a lot of fiscal spending aligned to green-related policies, whether it鈥檚 infrastructure or renewables, etc. 鈥� that鈥檚 going to play a major part in both the U.S. and global economies,鈥� Hambro said.
There was also general agreement among the panelists that ESG investment criteria would continue to influence boardroom decisions in 2021, and companies that take ESG seriously would be increasingly embraced by investors worldwide.
鈥淚n the future, we鈥檙e not just trying to build sustainable businesses that produce cash and cash returns, but businesses that enrich the lives of all the stakeholders that participate in it.鈥�
However, Lynn Forester de Rothschild, CEO of E.L. Rothschild, cautioned that slapping 鈥淓SG鈥� on an investment brochure would not be sufficient; rather, the effort must be sincere. 鈥淚t鈥檚 not going to be enough to just label something an ESG product,鈥� Forester de Rothschild explained. 鈥淭here鈥檚 going to be accountability for how managers are forcing change in the companies they invest in.鈥�
In a separate one-on-one discussion with Oliver Baete, CEO of Allianz, the largest European insurer, Baete said he was very pleased that climate change issues were not forgotten even during the height of the pandemic, adding that countries and corporations have to move forward on the 鈥減racticality of implementation鈥� of their commitment to address climate change because 鈥渢hat commitment is irreversible.鈥�
The biggest challenge post-pandemic, Baete noted, was how societies were going to adjust psychologically to coming out of the pandemic. 鈥淚t all very much depends on the level of confidence among investors, consumers, and entrepreneurs as to whether will we see a boost in consumption and investment.鈥� Much of that, he added, will depend on the success of continued vaccinations across the globe.
Investing in social responsibility
For investors who are confident in the future and may be in search of opportunities, another cultural shift to consider is the demand for sustainable, eco-friendly practices that go far beyond the product itself to how the product was sourced, processed, packaged, marketed, and delivered, the panel said.
鈥淭he adoption of socially responsible principles goes all the way back down the supply chain,鈥� said Rishi Kapoor, co-CEO of Investcorp, as consumers continue to search for products that reflect their values and ideals. 鈥淚n the future, we鈥檙e not just trying to build sustainable businesses that produce cash and cash returns, but businesses that enrich the lives of all the stakeholders that participate in it,鈥� he said. 鈥淲e believe very strongly that this is where the investment universe is going.鈥�
The possibility of inflation rearing its ugly head after so many years of near-zero interest rates was also discussed by both the panel and Baete. But concerns that a newly energized economy might fuel inflation were muted by the recognition that inflation isn鈥檛 all bad, particularly if it is a result of energized markets driving higher valuations.
鈥淩unaway inflation is not good for secondary markets, but some inflation in equity markets is actually good,鈥� said Fabiana Fedeli, global head of fundamental equities for Robeco. 鈥淲e still believe that inflation will be quite benign over the year.鈥�
Baete agreed that a post-pandemic recovery boom could spark inflation, but noted that one generally unasked question is about the level of debt that many countries have taken on during the pandemic to support their economies. 鈥淲hen and how this debt will be addressed is not a question that is being asked,鈥� he said, adding that if it is ignored, it will end up being 鈥渁 question for our children to address.鈥�
China/US relations
With China poised to overtake the U.S. as the world鈥檚 largest economy, there was some general concern among the panelists about how those power dynamics might play out, but most agreed that no matter what happens, there will be opportunities for smart investors.
According to Robeco鈥檚 Fedeli and Lynn Forester de Rothschild, U.S./China trade relations under the Biden administration probably won鈥檛 diverge too dramatically from the Trump administration鈥檚 approach, except for a possible emphasis on holding China accountable for human-rights violations, data manipulation, and intellectual property issues. 鈥淲e continue to see a lot of interest in the overall Chinese market, and we believe China will be destined to become a core location in investors鈥� portfolios going forward,鈥� Fedeli said.
鈥淚t all very much depends on the level of confidence among investors, consumers, and entrepreneurs as to whether will we see a boost in consumption and investment.鈥�
BlackRock鈥檚 Evy Hambro agreed that 鈥渆verybody is anticipating that the China will become the world鈥檚 largest economy. We all know it鈥檚 going to happen, and the capital will follow in terms of investment decisions,鈥� he said. 鈥淲e just need to be prepared for it and hopefully pick the right winners.鈥�
Baete agreed about China鈥檚 growing strength, and cautioned the new Biden administration not to force the E.U. to choose between the U.S. and China, as the Trump administration effectively did over the past four years. 鈥淭here needs to be a real partnership between the U.S. and the E.U. that respects the strength of both,鈥� he explained.
That said, Baete worries about lofty market valuations and the lack of cushion they will provide in the event of a downturn brought by prematurely ending financial stimulus, social unrest (especially in the U.S.), or continued virus mutations. 鈥淎ny one or a combination of these developments could create a significant opportunity for a market correction.鈥�
This blog post was written by 抖阴成年 contributors Tad Simons and Gregg Wirth.
