Outlook 2021: Stefan Hofrichter (Allianz Global Investors)
By Stefan Hofrichter, Head of Economics & Strategy at Allianz Global Investors
What is the economic outlook for 2021?
With the COVID-19 pandemic continuing to weigh on the global outlook, economic activity might not return to its pre-COVID-19 trend path for several years. Much depends on the successful development and deployment of vaccines and drug therapies, and the degree to which virus-related uncertainty impacts private households’ and companies’ spending patterns. Recent news from several major pharmaceutical companies has raised hopes that an effective vaccine is imminent.
There could still be longer-term consequences from severe disruptions to the labour market and supply chains. Nevertheless, investors can draw comfort from the unprecedented levels of fiscal and monetary stimulus that are helping to lift risk assets – although this support comes with potential side effects.
What are the biggest opportunities and threats for investors?
Among the risks of the massive amount of stimulus from governments and central banks are high asset prices in some markets (particularly government bonds and US equities), high leverage (which could raise default risk) and rising inflation volatility. All these factors emphasise the importance of taking an active investment approach that centres around careful selection.
With this in mind, investors may want to seek out new sources of return potential that could benefit from the evolving post-COVID-19 recovery story – in addition to sectors that have prospered through the crisis.
Private markets have demonstrated resilience and could be an attractive option for many institutional investors. If the pandemic is contained (perhaps aided by an effective vaccine) and macroeconomic data improve, investors should also take a close look at European and Asian equities, value sectors and corporate bonds.