2021 Global Market Outlook: The Old Normal

In Europe, the second wave of virus infections has reversed the third-quarter V-shaped recovery, with the region on track to record negative GDP (gross domestic product) growth in the fourth quarter. The new lockdowns are working, however, with infections across the region having peaked in early November. We believe that Europe is poised for a strong post-vaccine recovery. The region is also more exposed to global trade than the U.S. and should be a beneficiary of a recovery in Chinese demand. Notably, after five years of underperformance, we expect the MSCI EMU Index to outperform the S&P 500® Index in 2021.

COVID-19 and Brexit uncertainty have battered the UK, with the FTSE 100 Index the worst performing regional equity market (by a wide margin) in 2020 to date. However, we believe it could be one of the better performers in 2021. The UK market is cheap relative to other markets and is overweight the financials, materials, and cyclical sectors that should benefit the most from a global recovery. 

The Chinese economy has returned to almost pre-pandemic output levels, which is a significant achievement, given the depth of its first-quarter downturn. We think that fiscal policy in China will remain supportive through 2021.

We believe that Japan’s rebound from the pandemic is likely to lag other developed economies, despite its less severe COVID-19 outbreak. This reflects the structural weaknesses that were in place before the pandemic, such as subdued consumption from its aging population.

Australia has controlled the virus outbreak better than most other countries and, with a relatively open economy, is poised to be a beneficiary of the post-vaccine global recovery. 2021 is likely to see an expansion of the Reserve Bank of Australia’s quantitative easing program.

In Canada, we believe that the country’s exposure to commodities—particularly oil—will benefit from a rebound in the global economy. While business investment may be slower to materialize, both the housing market and improving commodity prices will likely serve as foundations to an economic recovery.

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The views in this Global Market Outlook report are subject to change at any time based upon market or other conditions and are current as of December 7, 2020. While all material is ...

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