Economy and financial markets

While most economists and market strategists expect an economic recovery in 2021, investors should maintain a balanced (diversified) portfolio allocation to protect against any negative surprises. We prefer cyclical values and are increasingly shifting our focus to the emerging markets and China, which should benefit from an expected depreciation of the US dollar. The next few months will likely see major market fluctuations, so it’s important to keep on strategy and avoid panic selling.

We are all eager for a better outlook in 2021 and an end to the Covid-19 pandemic. Now that some coronavirus vaccines have been approved, we are confident that there is light at the end of the tunnel, even though our optimism has been somewhat tempered by the emergence of new strains. The consensus among economists is that 2021 will be a year of economic recovery. Seldom before have their economic forecasts been so bright, and many market strategists are expecting 2021 to be an outstanding year for equities.

The theme of the year is TINA (there is no alternative) – in other words, the only way forward is with equities. Faced with such an overwhelming consensus, my instinct is to remain cautious, even though our strategies have long favoured real assets, such as shares. We must not underestimate the potential for disappointment if there is too much consensus. For this reason, our approach to the coming year continues to focus on maintaining a well-balanced (diversified) investment strategy.

Our economists also expect a strong global economic recovery after this year's recession. Our main scenario of a post-corona global upswing is based on low or even negative interest rate policies and weak inflation forecasts, which should further boost the valuations of equity investments and other real assets. However, there is still plenty of uncertainty: our entire scenario hinges on the roll-out of vaccination programmes, and we cannot exclude the risk of a virus mutation that is not covered by the standard vaccine. But given what we currently know, it would be possible to adapt the vaccines to any mutated variant within around six weeks. So we remain confident and maintain our positioning on real assets, such as equities, corporate bonds and gold. We prefer cyclical values and are increasingly shifting our focus to the emerging markets and China, which should benefit from an expected depreciation of the US dollar. Nevertheless, the next few months will continue to see major market fluctuations, so it's important to keep on strategy and avoid panic selling.

This pandemic has created the “Covid-19 generation” – a cohort that has not experienced any wars and just a short recession, which was overcome with significant state intervention. This has influenced their priorities and increased their appetite for structural change. We can divide this into temporary and permanent changes. I expect that the travel freeze, city exodus and work-fromhome trend will be rather temporary in nature and that we will gradually return to our old habits. The sustainability movement, growing awareness about our health, and technological progress, which is supported by all states worldwide, will continue to shape our future. For us as investors, this creates attractive opportunities and also new risks, which we will take into account in our portfolios.

I hope you enjoy reading this report, and I wish you all the best for the new year.

Giovanni Leonardo 

Please click download to read the full report.

Customer service
Please send any comments or questions relating to this or another publication to:

Schroder & Co Bank AG
Central 2
CH-8001 Zurich

Disclaimer – Please note that this document is published for information purposes only. It does not constitute nor purport to constitute any form of advice, recommendation or offer, or invitation to offer, or solicitation, to buy, invest in or subscribe for any financial instrument or service, and any representation or warranty in respect of any financial instrument or service. This document does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The financial instrument and services men-tioned in this document may not be suitable for certain recipients of this document. A person receiving or reading this document should seek advice from a financial and/or tax adviser regarding the suitability of such financial instruments and services, taking into account the specific investment objectives, financial and tax situation or particular needs of such person, before making a commitment to purchase or subscribe for any of such financial instruments or services. All information in this document was obtained from sources believed to be relia-ble and in good faith, but no representation or warranty, express or implied, is made as to its accuracy, completeness or timeliness. Schroder & Co Bank AG, its directors, officers and employees accept no liability for any loss whatsoever, direct or indirect, arising from the use of such information. Past performance is not necessarily indicative of future results. Financial instruments and services are available only in those jurisdictions where they may be legally offered. Changes may be made to financial instruments and services at any time without prior notice to you. Any financial instrument or service referred to herein may not be offered or sold within the United States or to or for the benefit of US Persons.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Contact Schroders Wealth Management

To discuss your wealth management requirements, or to find out more about our services and how we can help you, please contact:

Marc Brodard

Marc Brodard

Head of Private Clients - Switzerland
Isabelle Blöchlinger-Brechbühl

Isabelle Blöchlinger-Brechbühl

Head Switzerland, Germany & IAM, Zurich