Light on the Horizon: 2021 Macroeconomic Outlook

Light on the Horizon: 2021 Macroeconomic Outlook

vimeo-478401231

Next year should see the global economy led by China and a moderate recovery in Europe and the United States in an environment supportive of risk, though already with some pockets of very tight pricing in investment grade. We are focused on 1) A China-led rebound 2) ESG solutions supported by policies in Europe and the United States 3) New technologies 4) Infrastructure, and 5) Flexible solutions that can quickly adapt the geometry of a portfolio.

A China centric rebound

China is the bright spot as the economy steadily rebounds and continues at a very decent clip. Consumption should also steadily improve as the job market tightens. China’s demand is already supporting production in Germany and this should help the rest of Asia Pacific. Note though that China is on a course for some import substitution in critical industries at a time when regional frictions are increasing. While this is an important development over a five year horizon, we remain focused on the economic rebound.

USA – W shaped recovery

Faced with a possibly W-shaped recovery, the Democrats may have to wait for the January 20th Presidential inauguration to pass a substantial fiscal package, and this with difficulty if the Republicans hold the Senate. Beyond this and partially to finance it, taxes are likely to rise somewhat for those earning two hundred thousand and above, while capital gains could increase somewhat to be a tad more in line with personal income so as not to discourage labor. This should help finance a broader health insurance, infrastructure, student loan forgiveness and a USD 1.7 trillion plan, in theory, to reach zero net gas emissions by 2050.

Europe – dispersion in growth

Growth in Europe is decelerating with lockdowns in several country and should start to rebound in January. Consensus expects economies to broadly recover together, but the odds are there will be some dispersion with the North outperforming. For example, Nordic economies are expected to grow at 3.5%. Nonetheless, Europe is likely to grow at a decent pace as its economies are far below potential.

Product implications

There are a series of product implications: 1) A China rebound can be expressed through EM exposures or specific China ones. 2) The ESG is a secular trend that is rapidly spreading. 3) New technologies such as Alibaba or Ant disrupt fundamentally established companies.  4) Infrastructure is likely to benefit from government spending in Europe and the United States. This is a defensive asset class, trading at historical discounts with high exposure to secular trends like ageing assets, de-carbonization and data growth, which will further drive growth potential of this asset class.

Conclusion

The environment next year should be broadly supportive for risk, yet there are already signs of excessively tight pricing in investment grade. We expect to see bouts of volatility from this, as well as periods of lower growth expectations. This continues to suggest holding flexible solutions that can quickly adapt to new circumstances.

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches, subsidiaries and representative offices. This document is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest key investor information document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management AB recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. The Legal Entities’ branches, subsidiaries and representative offices are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds, S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and representative offices. This document may not be reproduced or circulated without prior permission. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.

Country selection

For more information about products in your area, please select a country below: