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Market outlook 2021: Vaccinating against valuations

Standard Chartered’s Wealth Management Advisory has released its market outlook for the year ahead, which provides the view that 2021 is likely to be a better year than 2020 from both humanitarian and financial markets perspectives. 

Vaccine distribution, fiscal and monetary policy support, bond yields, the US dollar and the value versus growth debate are five factors which are likely to define financial markets in 2021.

"On balance, we believe these factors are likely to be supportive of risk assets through 2021, possibly with a disproportionate dependency on effective vaccine distribution," said Steve Brice, chief investment officer at Standard Chartered Wealth Management. "While we doubt everything will go smoothly, we see positive development on most fronts, which should be supportive for asset class returns in 2021. The increase in excess capacity in the global economy means central banks are likely to remain focused on supporting growth, which means the equity bull market is likely to continue through 2021 and beyond.”

Views across key asset classes


A stronger economic recovery should feed through to higher corporate profits, reducing default risk and supporting further reduction in yield premiums, which appear inexpensive on a relative basis. Standard Chartered says it views credit, which are bonds that offer a premium holding over government bonds, as a preferred holding. It also prefers Asian USD bonds and Emerging Markets bonds as they should benefit from weaker USD, stronger inflows, reduced geopolitical risks given US election results, and potential for capital appreciation given cheap valuations.


Global equities are the most preferred asset class in the Standard Chartered report. The bank expects the current bull market to continue in 2021, driven by vaccine rollout, economic reopening and a recovery in earnings. Asia ex-Japan, China, US, Euro area and Japan equities are preferred. While it is bullish on equities in 2021, the bank expects the price-to-earnings ratio to decline in the year ahead as the earnings recovery outpaces the market rally.


The USD is likely to continue its longer-term downtrend, according to the report. Higher US budget and trade deficits could concern international investors. US asset outflows will likely seek higher global returns and USD reserve holdings may continue to decline. The bank expects the EUR, GBP, AUD and CNY to be the primary beneficiaries of a broad USD decline in 2021.


Standard Chartered says it sees Alternative strategies as a useful addition to a traditional, long-only stock/bond portfolio. Alternative strategies give exposure to sources of return that may not be directly accessible via long-only investments in stocks and bonds. The bank maintains Alternatives as a core holding into 2021.

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