The varying COVID-19 vaccine rollouts throughout the world makes for an interesting risk analysis for 2021. While the US has had a straightforward rollout plan and stimulus, outside there are varying predictions for foreign markets.
Europe’s relatively slow vaccine rollout and smaller fiscal stimulus means it continues to lag the U.S. in terms of economic performance. However, its pace of vaccinations is increasing, putting the region on track for an economic reopening by the third quarter. There is an expectation that the MSCI EMU Index, which reflects the European Economic and Monetary Union, should outperform the S&P 500 Index in 2021. Europe’s exposure to financials and cyclically sensitive sectors such as industrials, materials and energy—in addition to its small exposure to technology—gives it the potential to outperform in the post-vaccine phase of the recovery, when economic activity picks up and yield curves in the region steepen.
In the UK, the FTSE 100 Index has reflected the worst performing regional equity market in recent years, but the outlook is improving in line with the economy. The FTSE 100 is the cheapest of the major markets in late March, and the expectation is that UK corporate earnings are set for a substantial rebound after declining by 35% in 2020. Meanwhile, the full impacts of the relationship between the European Union and the United Kingdom are yet to be realized.
Chinese economic growth is predicted to be strong in 2021, boosted by the recovery in the global economy. While China-U.S. tensions continue to linger in the background, the base-case expectation is that there will not be any further escalation from the new U.S. administration during these early stages of the economic recovery. T.Rowe Price mimics this, but adds that the Biden Administration is unlikely to unwind the tariff situations, instead intellectual property rights will be a major issue and could cause tensions. Blackrock has noted similar predictions, “Covid-19 has accelerated geopolitical transformations such as a bipolar U.S.-China world order and a rewiring of global supply chains. Strategic implication: We favor deliberate country diversification and above-benchmark China exposures.”
It’s predicted Japan’s growth will significantly lag other major economies, although 2021 growth should still be above-trend. The slower vaccine approval process and subsequent rollout likely will push back the potential for some form of herd immunity.
GDP growth in Australia is likely to be lower than most other developed nations this year, but this is largely reflective of the country’s smaller economic drawdown in 2020, due to lower COVID-19 infection rates.
In Canada, the improving business cycle supports cyclical sectors and the value factor. When combined with better relative value than U.S. equities, we believe Canadian equities likely will outperform their U.S. counterparts this year.
Lingering high unemployment, income inequality, and sustained physical distancing could increase prompt governments to adopt protectionist measures and increase deficit spending. The pandemic has reshaped global supply chains, labor markets, and business models, creating opportunities and risks.
Footnotes: https://russellinvestments.com/us/global-market-outlook
https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/outlook