The outlook for stock investing 2021

As with all good investing it considers the macro-economic outlook, after all, 70% of the movement in most stocks is caused by the underlying performance of the index and not that actual individual variances of the company or product. Therefore, to get an insight as to where the value is in 2021, we must assess the likely underlying economic conditions.

In terms of economic impact, Covid-19 may be further in the rear view than investors think, once you vaccinate the 10% most vulnerable, the ventilator issue goes away.

Personal savings rates have risen to record highs because people have had less places to spend. Government supports, together with massive fiscal and monetary stimulus have flooded the system with cash. This has resulted in crazy low interest rates resulting in negative rates on large deposits. Despite the prevailing poor economic data, internationally, markets have continued to perform. The market is so awash with cash it is chasing any asset for a return and given that most government bonds are yielding negative, that drives more money into equities, commodities, and corporate bonds.

There is little perceived downside risk as large-scale corporate default is unlikely with this much stimulus and if the news gets worse, stimulus will be increased. So, the market is viewing this as essentially a free bet.

We expect a spending boom in the second half of 2021 as people cannot wait to travel, go out to pubs and restaurants, sporting events, concerts, etc, etc. Do not underestimate the potential, in the long run, for a big jump in inflation on the back of that. The market is unprepared for the kind of supply tightness we could see. Inflation could be on the horizon and inflation tied to exceptionally low interest rates means bonds are not the place to be invested.

There will continue to be a move away from dependence on China for key supplies because of the pandemic, the trend toward off-shoring should move to on-shoring, and this will be inflationary also.


Everything points to value outperforming growth. Value is the dull space for portfolio investing and will not record the type of returns being experienced in growth stocks like Netflix, Amazon, Tesla etc. Anyhow, those growth market valuations look extremely dangerous so any risk event will see substantial corrections. Value stocks: i.e., healthcare, consumer staples, industrials utilities, energy, and finance etc. offer a lot of protection against a risk event, as they are so under-valued and have been ignored for years.

We are already seeing a move to value stocks and that looks to be the play in 2021.

The US dollar, which has enjoyed a constant stream of foreign inflows since 2014 now looks like it is in structural decline. The dollar versus the Euro has fallen 8% in 2020, primarily, because interest rates have declined and there is no rate premium to justify the risk of holding US Bonds. Inflows from 2014 are likely to be reversed and that lowers the dollar’s value.

When you invest in US stocks you are exposed to the value of the dollar and our view is that the dollar will continue to decline in 2021, falling another 10% if not more. This may mean a standard portfolio mix of S&P 500 stocks and Western European bonds, will underperform badly into the future. Anyone with that asset mix, and it is the most common portfolio make up, needs to look to re-balance or potentially see no returns for the foreseeable future.




Historically a lower dollar is a big tailwind for Emerging Markets, Asia, Japan & Commodities in general, as debt is normally financed in dollars and a lower dollar obviously eases that burden somewhat.

Overall, we really like the market outlook for 2021 so here are the areas we feel will perform best: –


Expect fiscal support globally and acutely in Europe, to be directed at Green Energy.

Following the Brexit deal UK Small & Mid-Caps are cheap, the world is underinvested in the UK and Small & Mid-Caps represent the UK better than the FTSE. The FTSE itself, certainly falls into the value bucket relative to the more growth-oriented US Mega-Caps. The difference is Materials, Commodity Producers & Financials vs big Tech. Small & Mid-Caps are more idiosyncratic in nature – less correlated to the big indices, which is what you want. Yields are better and valuations are better, also, you can add a potential pick from the appreciation of Sterling after the Brexit deal.


Technology stocks are basically a long duration play, if we see inflationary data, they become very exposed at current valuations. Big Tech is also probably looking at higher taxes and higher regulatory costs which should eat away at margins. We expect US Equities and specifically big Tech to underperform more cyclical/value areas of the market.


The conclusion of a new overarching Regional Comprehensive Economic Partnership (RCEP) Free Trade Agreement (FTA) between 15 Asia-Pacific countries has been celebrated across the globe. Its signatories are the 10 members of the Association of Southeast Asian Nations (ASEAN) countries and Japan, Korea, China, Australia, and New Zealand; India withdrew from the agreement at the last moment.


The formation of this New Asia Trade Bloc of 2.2 Bn people will stimulate growth in the East, so the Asia Pacific region is on our radar. Japan specifically offers particularly good value, and the Japanese are leading the charge in stimulus measures including buying stocks directly!


People are income repressed, companies that can consistently grow dividends while maintaining stable balance sheets will benefit from buyers chasing yields. This will be particularly significant in Europe where valuations are currently half that of the USA. However, EURO strength vs Dollar will not be a good thing for European Exporters that do a lot of business in the US, so, although we really like European stocks all companies will not benefit.



Gold & Silver Miners look incredibly attractive on a fundamental basis, the sector is in great shape. Expect the miners to outperform the Metals in 2021.


The ‘Electronic Vehicle’ trend is all about the suppliers of Copper & Nickel. You make more money in a war selling bullets than you do guns, same with the metals that go into EV’s. This trend is in play out to 2030 where counties have strong emissions targets. Copper miners are unbelievably cheap relative to the metal.


In summary, if you have large US Exposure (most pensions), you are more vulnerable to a low return future than you have ever been. Loss on capital and currency could be a double whammy!


The standard portfolio of US stocks and Western European bonds has served very well over the last decade. The forthcoming decade is going to require a more sophisticated portfolio than the common ‘off the shelf’ offering.


In risk terms we believe the markets are relatively stable, unlike the economies. It may be hard to rationalise that while economic activity struggles markets boom and that is down to stimulus and low rates as we have said. However, the markets are not immune to corrections and that is the benefit of investing in value where any correction will be muted, and performance will be better longer term.


Peter Brown is Managing Director of Baggot Investment Partners

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