After an unprecedented year, UBS, the world’s leading global wealth manager, expects economic output and corporate earnings to rebound to pre-pandemic levels in 2021.
In a base case scenario, a combination of fiscal stimulus, continued low interest rates, and a vaccine rollout should generate above-average returns for small- and mid-sized companies, select financial and energy stocks, and companies in the industrial and consumer discretionary sectors, according to the annual Year Ahead outlook published by UBS Global Wealth Management’s Chief Investment Office.
The report’s core recommendations include:
- Diversify portfolios for the next leg higher in equities by looking beyond the resilient, large, and US-based firms that dominated in 2020. Investors should think global, look for catch-up potential, and seek new long-term winners.
- Diversify out of low-yielding cash and bonds and hunt for yield in emerging market US dollar-denominated sovereign bonds, Asian high yield bonds, and select crossover bonds that are close to the dividing line between investment-grade and high-yield rated issuers.
- Position for a weaker US dollar. Investors should diversify across G10 currencies or into select emerging market currencies and gold.
Private market and sustainable investments could be valuable additions to investors’ portfolios. Heading into 2021, UBS maintains its preference for sustainable investments for private clients investing globally.
Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said: “We think 2021 will be the ‘year of renewal’. Renewed growth, expansive fiscal and monetary policies, and fresh political leadership mean we should also expect new market leadership in 2021. Looking beyond the year ahead, investors should also consider sectors undergoing technological transformation. If the last decade was about investing in technology itself, we think the next will be about investing in the disruptors challenging the status quo in other industries.”
The Next Big Thing
Looking ahead to the next decade, investors face a world that is more indebted, more unequal, more local, but also more digital and, in some respects, more sustainable.
They can find long-term opportunity in trends that have been accelerated by the COVID-19 pandemic and will help power a new and renewable future, especially in sectors undergoing technological disruption. Whether it’s the transition to a zero carbon economy, the increased need for a more efficient and holistic healthcare system, or the push to further digitize financial services – the companies exposed to these trends are expected to enjoy above average growth over the longer-term. By 2035 the 5G transition alone should create USD 13.2 trillion of economic value.
Scenario analysis
| Upside scenario | Central scenario | Downside scenario |
| Investment view | ||
| Diversify for the next legPosition for a weaker dollarInvest in the Next Big Thing | Hunt for yieldBuy into sustainabilityDiversify into private markets | A diversified hedging strategy, including gold, dynamic allocation strategies, long duration, and option structures. |
| Pandemic recovery | ||
| A highly effective vaccine becomes widely available by 1Q21 in leading economies.Social activity fully normalizes by 2Q21 Developed countries’ GDP returns to pre-pandemic levels by end-2021 | An effective vaccine becomes widely available by 2Q21 in leading economies.COVID-19 waves recur in the first half, but short-term restrictions and limited public fear allow social activity to normalize alongside a vaccine rollout by 3Q21Developed countries’ GDP returns to pre-pandemic levels by 2022 | Vaccine availability delayed, or with a lower efficacy than initially thoughtPublic fear of COVID-19 is elevated, and restrictions on business activity recur throughout 2021, causing social activity to only return to normal by late-2021.Developed countries’ GDP returns to pre-pandemic levels by 2023. |
| Economic policy | ||
| Central bank policy stays accommodative, albeit edging toward a tightening bias later in the year.Low real rates and a weaker dollar boost global growth | Central banks maintain accommodative policy. Real interest rates remain low and stable | Monetary policy support is increased to offset the effects of weak growth, but may be tapered if inflation rises unexpectedly.Real rates rise initially, but subsequently trend down. |
| Geopolitics | ||
| The US government is able to agree on a larger-than-expected fiscal deal, closer to USD 2tr. The Biden administration begins a partial rollback of existing tariffs on China exports, supporting global growth. | The US government agrees on a fiscal deal worth USD 500bn – 1,000bn, and do not increase tax ratesUS-China relations remain a long-term issue, but President-elect Joe Biden’s foreign policy is more predictable than that of his predecessor. | Ongoing contests to the US election result, or partisan political discourse, create uncertainty about fiscal policy.US-China trade tensions re-escalate, with the fundamental geostrategic rivalry between the US and China not tempered by the new US administration. |
| Asset class targets for June 2021 | ||
| S&P 500 | ||
| 4,000 | 3,800 | 2,900 |
| Euro Stoxx 50 | ||
| 3,900 | 3,600 | 2,800 |
| MSCI EM | ||
| 1,390 | 1,280 | 900 |
| SMI | ||
| 11,500 | 11,000 | 8,800 |
| USD IG spread | ||
| 60bps | 80bps | 200bps |
| USD HY spread | ||
| 350bps | 400bps | 700bps |
| EMBIG spread | ||
| 280bps | 340bps | 550bps |
| EURUSD | ||
| 1.25 | 1.22 | 1.12 |
| Gold | ||
| USD 1,600–1,700/oz | USD 1,950/oz | USD 2,200–2,300/oz |
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