2021: The equity specialist view

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In November 2020 we asked 106 analysts and managers from five investment firms within BNY Mellon Investment Management for their thoughts about the year ahead. Here, we drill down to the views of those whose focus is on equities.

For equity specialists within BNY Mellon Investment Management, the year ahead looks bright. We asked them for their 12-month outlook, and a clear majority – 80% – said they are either ‘selectively bullish’ or ‘bullish’ about 2021. In contrast, just under 5% said they were ‘selectively bearish’ on markets; and only 15% said they were neutral.

A majority (75%) said they expect volatility to be lower in 2021 than in 2020 – which is perhaps unsurprising given the global impact of the Covid-19 pandemic on markets over the past year.

Clear views also came through when we asked for opinions on specific sectors. Here, a majority (30%) flagged tech stocks as being overvalued. On the flipside of the coin, the value of value seems to be coming through as part of a wider shift in market sentiment, with well over half of our specialists saying stocks in this category are undervalued right now.

Experts from across the five investment firms also highlighted emerging markets as attractive.

In their own words…

As part of the survey we asked respondents to provide their own views about how stock market returns will pan out in 2021. Here are some of those responses:

  • “There will be delayed negative economic effects from the pandemic and therefore selectivity is important.”
  • “Sectors like tech, and ecommerce should broadly continue to do well following a strong 2020. Some cyclicals that were punished through 2020 will likely perform well as the world recovers from Covid-19. That being said, I think the potential for the US to continue failing to pass another round of stimulus remains a significant threat. High rates of small-medium-enterprise closures, evictions, and strained state/local finances could have direct and indirect consequences for businesses across a number of sectors.”
  • “Stock market returns are the aggregate of the returns of the businesses that compose the indices. I am selectively bullish on certain, specific businesses that have structural tailwinds and are able to grow their revenues and cashflows.”
  • “I believe value-oriented equities have strong upside potential as earnings expand from depressed levels in 2020. In the large cap growth/tech space, earnings did not correct during COVID, so y-o-y comparisons will be more difficult in ’21, potentially setting up for less compelling performance trends in that part of the market.”
  • “The business models of the companies which survive the pandemic will be proved to be resilient. A slow but robust growth could be expected from these companies along with the economic recovery.”
Word cloud: Where will investors find the best opportunities for income in 2021?
  • “Covid-19 is a major uncertainty in a way that most uncertainties are not. Even so, the bigger risk is inappropriate, unduly restrictive government policy which relies on QE to paper over the cracks. Markets are at relatively high valuations, notwithstanding that the cost of capital remains at record lows due to zero interest-rate policies around the world. Thus, there should be a reasonable set of selective opportunities.”
  • “I feel cautiously optimistic – there will be lapping weak comparison periods and likely be a more benign White House administration regarding trade wars/foreign policy… but tempered by potential Brexit reverberations.”
  • “The vaccine is coming sooner than previously thought possible and stimulus is helping markets. Fiscal policy is likely to be supportive too in tackling climate change and improving welfare system through Universal Basic Income.”
The multi-asset specialist view

In common with their equity-focused peers, our multi-asset specialists appear sanguine about the prospects for the year ahead. Nearly 75% said they were either bullish or selectively bullish about markets going into the New Year, with less than 3% saying they were feeling bearish. Equities (65%) and emerging markets (32%) were their favoured choice for positive returns in the coming year.

Within the alternatives space, there was almost equal billing for infrastructure equities (28%), renewable energy (23%) and ‘other’ commodities (ex-gold) as their favoured asset class.

Important information:

https://www.bnymellonim.com/outlook/global-disclosure/

GE201328 EXP: 10 JUNE 2021

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