FV 2021 Global Market Outlook – Q4 Update: Growing Pains

Europe’s exposure to financials and cyclically sensitive sectors such as industrials, materials, and energy—as well as its relatively small exposure to technology—gives it the potential to outperform as delta-variant fears subside, economic activity picks up and yield curves steepen. We believe that the MSCI EMU Index, which reflects the European Economic and Monetary Union, has the potential to outperform the S&P 500® Index in the coming quarters.

In the UK, supply bottlenecks and labor shortages triggered a sharp rise in underlying inflation and led to concerns that the Bank of England (BoE) may begin raising rates in the first half of 2022. We believe the BoE is unlikely to be that aggressive and that an easing in supply constraints early next year will convince the central bank to delay rate hikes. The FTSE 100 Index is the cheapest of the major developed equity markets in late 2021, and this should help it reflect higher returns than other markets over the next decade.

We expect Chinese economic growth to be robust over the next 12 months, supported by a post-lockdown jump in consumer spending and incremental fiscal and monetary easing. Some uncertainty remains around the path of future regulation, especially as it relates to technology companies, and as a result we expect investors will remain cautious on Chinese equities in the coming months. The property market—and property developers in particular—remains a risk that we are monitoring closely.

We believe that Japanese equities look slightly more expensive than other regions, such as the UK and Europe. We maintain our view that the Bank of Japan will significantly lag other central banks in normalizing policy.

In Australia, the economy is set to return to life, with lockdowns likely to be eased in October and November. Consumer and business balance sheets continue to look healthy, which should facilitate a strong recovery. The Reserve Bank of Australia has begun the process of tapering its bond-purchasing program, but we expect that a rise in the cash rate is unlikely until at least the second half of 2023.

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These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions ...

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