The departure of Donald Trump from the White House will mean one less disruptive force on world markets, as his Tweets lose the power to upend them almost daily.
His successor, Joe Biden, is expected to provide much steadier leadership as a Covid-19 vaccine is rolled out and countries look to rebuild their economies and pay the massive bills run up during the pandemic.
Investing experts give their take on how events and opportunities might unfold, with a green recovery on the cards but the risk of a clampdown on the tech giants looming in the US, Europe and China.
New president : Joe Biden is expected to provide much steadier leadership on the world stage than Donald Trump
The US: Biden could be stymied unless Democrats win senate run-offs in Georgia
‘Somewhat lost in all of the noise surrounding the 2020 presidential election is the fact that control of the Senate remains undecided,’ says Jason Shoup, head of global credit strategy at Legal and General Investment Management.
‘In order to reclaim the upper chamber of Congress, the Democrats need to win both Georgia seats in a run-off election on 5 January.’
He says President-elect Joe Biden’s agenda may need to be scaled back significantly, although he is likely to use executive orders to circumvent Congress and tackle issues like immigration, trade, energy and housing policy.
Shoup suggests Senate obstacles mean it will be ‘nearly impossible’ to reverse the Trump tax cuts, so corporate and personal rates could stay at current levels at least until 2022, and the likelihood of a big infrastructure deal is lower.
‘Meanwhile, it is quite likely that components of the Affordable Care Act [President Barack Obama’s major healthcare reform] will be found unconstitutional by the Supreme Court and require legislative fixes.
‘Rather than expanding the ACA as he would like, the new president may find himself fighting to preserve the existing platform.’
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, has a warning for investors about the US- dominated tech sector, where she says valuations are still up near heady heights and looking expensive.
‘The behavioural changes Covid-19 has brought about are only an acceleration of digital trends already sweeping through the economy.
‘This has added to optimism that tech stocks which have already seen big gains will still be a safer longer term bet and the huge appetite for Airbnb shares on floatation underlined that enthusiasm.
‘However, the spectre of regulation is now rising over the tech sector.’
Vaccine relief: Countries will look to rebuild their economies and pay the massive bills run up during the pandemic
Streeter points out that in the US, Facebook faces legal action accusing it of stifling competition which could see it forced to sell Whats App and Instagram.
Meanwhile, in Europe politicians will soon vote on stringent new rules to limit anti-competitive behaviour and the content on tech platforms.
‘Joe Biden has not yet taken office, but already Democratic lawmakers are chomping at the bit to limit the power of other tech companies,’ says Streeter.
‘Legislation will take time to be enacted, but the winds of change are blowing in the direction of a much tougher regulation, which is likely to put pressure on valuations down the line.’
Europe: Unemployment and a massive debt likely to be legacies of 2020
‘Investors already expect 2021 to be a year of recovery, as we emerge from the grip of the pandemic,’ says Sam Morse, portfolio manager of the Fidelity European Trust.
‘The question is to what extent earnings and dividends can bounce back from the cuts felt in 2020 – current forecasts of 30-50 per cent increases in 2021, from 2020 levels, seem overly optimistic.
‘We have already seen some strength in markets that suggests much of any recovery may already be factored into share prices.
‘Recent reports of a highly effective vaccine have boosted share prices even further. This all prompts a degree of caution.
‘Any delays in the distribution, or problems with the efficacy of the various vaccines in development could spark further volatility.
‘Meanwhile consumers and businesses may disappoint forecasters and remain more cautious in their spending than anticipated. While hopeful that 2021 will be a better year for equity markets than 2020, we still retain a degree of caution for the year ahead.’
Mark Nichols and Mark Heslop, co-heads of strategy for European equities at Jupiter Asset Management, predict that unemployment and a massive build-up of debt are likely to be two enduring legacies of 2020.
‘We expect this to result in a multi-year extension of enhanced monetary stimulus (cheap money) and massive infrastructure investment, specifically directed towards the green economy.
‘Corporates may well be expected to help balance the books, especially unpopular “polluters” and the much-politicised consumer tech companies.’
Covid recovery: China looks set to avoid much of the painful economic scarring felt in western democracies
China: Gained an advantage with its swift control of pandemic
China is well placed to be a relative winner from the Covid-19 crisis, according to Ben Bennett, head of investment strategy and research at Legal and General Investment Management.
‘It’s easy to underplay just how successful the country has been at controlling the virus and returning to pre-pandemic economic output. The benefits of an efficient track-and-trace system are obvious.
‘And by getting back on its feet quickly, China has avoided much of the sustained unemployment and defaults that will scar Western economies for years to come.
‘The cost is government control of private data. But for now, economic practicalities dominate such concerns.’
Bennett flags a government clampdown on China’s tech sector and the opening up of domestic Chinese financial markets as among the issues to watch going forward.
Green plan: Politicians look likely to stimulate economies with new programmes to combat climate change
Dale Nicholls, manager of the Fidelity China Special Situations investment trust, says the economic backdrop for China remains supportive of markets.
‘Strong control of the Covid-19 virus has clearly been a factor supporting the recovery. The third quarter GDP figure of 4.9 per cent was supported by stronger services and external demand.
‘The fourth quarter GDP figure should exceed this level as key laggards in the service sector – travel and leisure – are gaining momentum.
‘Government stimulus has clearly been a factor supporting the recovery, but overall has been more restrained and targeted than measures seen in most western economies. This therefore leaves room for further policy support if required.
‘Regarding markets, while valuations are clearly not as attractive as they were earlier in the year, they continue to trade at a significant discount to the US markets despite arguably better growth prospects.’
Japan: Energy efficiency and medical tech are among the promising sectors
‘Japan is a cyclical market dependent on global growth so hence in a 2021 global recovery it is well placed to perform as the virus-related negatives fade and the comparisons become easier,’ says Nicholas Price, portfolio manager of the Fidelity Japan Trust.
‘Going forward, the key issues will be the speed with which we exit from the current crisis, the extent and the rapidity of the cyclical recovery, and finally the mid-term inflationary outlook due to the scale of the monetary and fiscal stimulus globally.’
Price says he is looking for opportunities among companies with growth and competitive advantages over the next three to five years.
‘Key areas which share those characteristics would be energy efficiency solutions, medical technology, Asian consumption and digital transformation providers.
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‘There are also a lot of under-researched mid-cap companies in Japan that are creating new markets that I have conviction in.
‘On the other hand, I am generally avoiding companies who have had a one-time boost in Covid-19 related demand or where the recovery will be very delayed.’
Which overseas funds should you consider for 2021?
Tom Stevenson, investment director for personal investing at Fidelity International, says: ‘The after-effects of the pandemic are likely to remain with us throughout 2021.
‘How we spend and how we save has changed, with certain themes becoming increasingly popular with investors.
‘I expect sustainability to continue to drive performance as it has throughout the pandemic. Companies that score highly on environmental, social and governance factors should continue to be rewarded by investors.’ He tips:
Brown Advisory US Sustainable Growth (Ongoing charge: 0.87 per cent)
‘The fund invests in businesses with a sustainable business advantage. It holds a relatively concentrated portfolio of 30-40 stocks.
‘The managers have a strong valuation discipline, which prevents them paying over the odds, which is an important consideration in the US market as it continues to hit new highs.’
Stewart Investors Asia Pacific Leaders Sustainability (Ongoing charge: 0.84 per cent)
‘Many market strategists expect non-US markets, in particular those in Asia and Emerging Markets, to outperform in the year ahead.
‘This fund focuses on companies that contribute to, and benefit from, economically and environmentally sustainable development.
‘It looks for “socially useful” businesses and manages risk by restricting its search to mainly large and mid-sized companies.’
Adrian Lowcock, head of personal investing at Willis Owen, says investors should trust the recovery in 2021.
‘Although there will be doubters, the global recovery is sustainable, synchronous and well supported by government and central bank policy.
‘The first half of 2021 will be hard but if we look ahead to later in the year, there are many opportunities.’ He tips:
Somerset Global Emerging Markets (Ongoing charge: 0.94 per cent)
‘Manager Edward Robinson employs a style which focuses on quality companies with healthy balance sheets, high returns on equity, strong cash flow and sustainable margins.
‘He is prepared to pay a higher price for these characteristics.
‘The approach means the fund is likely to perform well in more difficult market conditions, while it may lag behind during momentum driven rallies in technology shares that do not meet the investment criteria.’
FSSA Asia Focus (Ongoing charge: 0.90 per cent)
‘Martin Lau, who manages this fund, applies a tried-and-tested company selection process, which looks for quality businesses that deliver sustainable growth at attractive valuations.
‘The fund invests predominantly in the Asia Pacific region, though it can invest as much as 20% elsewhere.
‘Lau adopts a pragmatic medium to long-term investment approach with a flexible style that will adapt to prevailing social and economic conditions. Company visits are of paramount importance.
‘Capital preservation is considered to be the foundation for long-term capital gains, so the fund aims to produce an absolute return with a sensible balance between risk and return.’
Man GLG Undervalued Assets (Ongoing charge: 0.90 per cent)
‘Henry Dixon and co-manager Jack Barrat believe they can add value by analysing company balance sheets to understand a business’ true real-world assets and liabilities.
‘They seek to identify two types of stock: those trading below their view of the company’s value and those where the company’s profit stream is being undervalued relative to the cost of capital.’
‘The portfolio has a clear bias to the value style but it does include elements of quality and positive earnings momentum. We consider Dixon has demonstrated his ability to consistently execute his investment process with discipline and care.’
Blackrock Gold & General (Ongoing charge: 1.17 per cent)
‘The fund gets its exposure to gold and other precious metals through investment in companies in the space.
‘Co-managers Evy Hambro and Tom Holl conducted detailed commodity and company research. Close attention is paid to liquidity and risk.
6’At the company level, valuation analysis is rigorous and aims to find companies with the best exposure to commodity prices within an acceptable level of risk.
‘This leads to an emphasis on larger producers with quality assets and ability to grow their production in a cost-effective way.’
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