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Global economy predicted to pause before soaring in 2021
2021 will provide investors the opportunity to cash in on private markets and businesses hurt, but not permanently damaged, by the pandemic as accommodating policies and pent-up demand drive global growth, an asset manager has explained.
Global economy predicted to pause before soaring in 2021
2021 will provide investors the opportunity to cash in on private markets and businesses hurt, but not permanently damaged, by the pandemic as accommodating policies and pent-up demand drive global growth, an asset manager has explained.
JP Morgan Asset Management’s (JPAM) Global Alternatives gives a fairly robust forecast for the next 12 to 18 months across alternative asset classes, predicting a surge in late 2021 on the back of pent-up demand.
The analyst explained that the global economy is tipped to pause for the duration of the vaccine rollout, before accommodating policies are expected to bolster activity in the later part of 2021, a new research report has revealed.
“After the unprecedented events of 2020 and the ensuring economic recovery, jump-started by swift central bank action and fiscal stimulus, investors continue to hunt for yield to take advantage of underlying consumer strengths and resilient fundamentals across global economies,” JPAM’s head of alternatives, Anton Pil, said.
Mr Pil stressed that in this environment, “alternatives, perhaps once considered optional, have become essential”.
Among the policies expected to support growth in the global economy, in the short term, are Europe's shift away from austerity and the United States’ $1.9 trillion fiscal stimulus package.
“In general, 2021 should be a solid year for the global economy,” the report said.
“As populations around the world are vaccinated gradually during the first half of the year, economic activity should begin to accelerate.
“As the threat of the virus fades, we expect a material acceleration in the pace of services sector activity amid pent-up demand for restaurant dining, entertainment, travel and other services impacted by the pandemic.”
The asset managers believe investors will likely search for businesses that were temporarily disrupted by the COVID-19 pandemic, but have avoided long-term demand destruction from the goods or services they provide.
“This leads us to favour more cyclical assets in the short term, even as we continue to recognise the need for growth, income and diversification over the long run. The pandemic may soon come to an end, but this economic cycle has only just begun,” the report stated.
However, investors are being urged to remain cautious of economic headwinds that could occur with the pandemic still looming.
“As always, investors should understand the risks, particularly when everyone seems to be singing from the same song sheet.”
“Any lack of fiscal support or abrupt change in the tone of monetary policy could undermine the recovery and cause capital markets to stumble.”
“Challenges relating to the distribution of the vaccine and/or inoculation would almost certainly delay a complete economic recovery. And there is still a risk that the virus mutates in such a way that current vaccines become ineffective,” JPAM explained.
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