What are our analysts’ stock market predictions for 2021?

Tech stocks could hinder US performance – Chris Beauchamp

After the volatility of 2020, investors are on watch for continued wild swings in stock markets. Equities entered 2021 on a high, having – in many cases – entirely recovered their Covid-related losses. While we might see some declines early in the year, the arrival of vaccines suggests the road to recovery is finally here. Supported by loose monetary policy, and hopefully by additional fiscal stimulus, US stocks overall look well-placed to continue their run.

The big risk for the S&P 500 is that, with so much of its performance coming from the surge in big tech socks, a sudden decline for these hitherto-untouchable names could seriously hinder the index’s performance in the next 12 months.

Markets to remain focused on the road to recovery in 2021 – Kyle Rodda

Most of 2021 will be about how the global economy recovers from the pandemic and early indications are quite positive – vaccines should be rolled out across the globe in the first quarter (Q1) and the second quarter (Q2), and mountains of economic stimulus could indicate the normalising of economic conditions, which ought to underpin a major rebound in growth.

This could all work well for assets that are sensitive to the business cycle, such as value stocks in the financial, energy, industrials and materials sectors, the broader commodity complex, and high-beta currencies.

Meanwhile, US stock market outperformance looks poised to end, as investment flows – underpinned by ultra-accommodative monetary policy from global central banks – seek out returns in higher risk regions and assets, such as Asian and emerging market debt and equities.

Naturally, this is the perfect bull-case scenario. There are several risks that threaten this outlook – not to mention, as we all learned in 2020, the ever-present possibility of a completely unknown event that derails markets. Of the foreseeable risks, difficulties in distributing and administering the vaccine is the most prominent, with any hiccups in that process posing a threat to the globe’s economic recovery. Another risk is the possibility of a change in economic policy, possibly as the global economy’s recovery begins to run too hot. As has been the case for years, an unexpected climb in inflation could force central banks to step away from their ultra-accommodative policy settings, potentially undermining conditions in a market still very dependent on monetary policy support.

Market health awaiting vaccination – Monte Safieddine

With all the central bank easing announced in 2020, inflation in yielding assets has already arrived. And so long as supply chains don’t get too constrained in 2021 and demand for the consumer price index (CPI) basket of goods doesn’t rise, sub-2% readings will ensure that any easing that had already begun pre-pandemic will continue well into next year.

The real wild card will be the vaccine, and not just on the logistics front which can be sorted over time, but whether population effectiveness can replicate sample efficacy figures without any long-term consequences. Even then, concurrent rising coronavirus cases and deaths will mean the first quarter of next year will still offer some gloom, especially if fiscal stimulus doesn’t arrive, a crucial factor in keeping the consumer afloat.

The difference between a contracting real economy and record high equities has widened owing to monetary policies forcing investors into taking ever greater risks for less yield, relying on capital appreciation and hopes of future economic growth. And while 2021 is expected to offer rosier economic figures should vaccines live up to expectations, it may not translate into any lasting pullback off record highs for equities. This will especially be the case if a weaker US dollar entices investors away from holding cash, likely keeping the current bull trend technical overview for key indices intact.

New strain and Brexit could weigh on investor confidence – Joshua Mahony

If 2020 was the year of disruption, 2021 is expected to be the bumpy road to recovery. The recent American stimulus breakthrough highlights a clearer pathway for US markets, with the prospect of a US president Joe Biden-led push for further spending likely to help drive outperformance.

While the more infectious coronavirus strain found in the UK in the latter part of 2020 could raise the risk of a near-term sell-off, there is a significant risk that a move overseas could lead to further economic restrictions. The mutation also comes with the risk that it’s unaffected by the current vaccines, raising fears of another drawn out race to find another inoculation.

The UK is likely to initially bear the brunt of this current strain, however, should the new strain spread worldwide, we could see major underperformance for less equipped developing countries – especially as Britain is leading the charge with vaccinations.

Q1 promises to be a volatile one for the UK, with extended lockdowns and an uncertain post-Brexit world bringing more fear and less confidence. Whatever form Brexit takes, it will involve some kind of disruption to current practises. However, Q1 will allow investors greater clarity over exactly how this event will shape the UK going forward.

Despite these risks, there is undoubtedly plenty of resources waiting in the wings which could come into play if the UK successfully navigates this initial disruption. Overall, 2021 is likely to see a progressive shift away from risk and uncertainty as the coronavirus, US election and Brexit risks all gradually (hopefully) fade into the rear-view mirror.

Emerging Asia stocks likely to continue the rally into 2021 – Jingyi Pan

US and emerging equities appear to be the consensus trade going into 2021. This is little surprise, given the expectation for monetary and fiscal policy to remain broadly supportive in the new year – even as the fiscal policy ceases to match levels that we saw in the immediate aftermath of the Covid-19 pandemic.

The notable gamechanger at 2020’s year-end was the positive vaccine developments, with the likes of Pfizer, BioNTech and Moderna getting approved in various parts of the world and commencing distribution. This was widely seen as a big step in the right direction to put the global population on the path of mass vaccination and toward the resumption of economic activities.

While the Emerging Markets Index had initially lagged its US counterpart in the early part of the recovery from the Covid-19 shock, it’s expected to continue the climb into 2021. The cyclical-heavy index may well ride on the recovery set to benefit the region. With the Biden administration, a less confrontational approach is also expected towards foreign policy, particularly with China even if trade tariffs are still set to remain for the time being. This would reduce the uncertainty going into the new year.

Emerging Asian equities remain a bright spot on account of the resilient performance seen for China. Having been the first-in and first-out with regards to the Covid-19 pandemic, the Chinese economy had continued to see robust economic readings and sustained improvement in demand – enough to lead the region into recovery. Various Association of Southeast Asian Nations (ASEAN) markets similarly fall in this cyclical-heavy group including the local STRAITS, although strictly not a part of the emerging market category.