False dawns or the start of change? The 12 key investment views and trends for 2021

Managers give their sector predictions for next year

2021 is just around the corner, and hopes are rising that certain sectors will bounce back. Should investors get carried away or approach with caution? 12 investment experts give their predictions on how areas such as ESG, global equities and artificial intelligence will fare next year.

Peter Bourbeau, co-portfolio Manager of the Legg Mason ClearBridge US Large Cap Growth fund 

US equities

With the US elections producing a market-friendly divided government, investor focus is shifting away from politics to the other elephant in the room: the Covid-19 pandemic.

We believe the key determinant of US stock performance in 2021 will be the approval and broad distribution of a Covid-19 vaccine. We are getting close to this becoming a reality and are already seeing some movement out of technology and Internet names into more economically-sensitive areas of the market such as retail, hospitality and transportation.

As economic growth picks up, investor risk tolerance could shift, potentially bolstering a move in market leadership from digital to physical businesses.

We are finding attractive values in consumer stocks that have been hurt the most by the pandemic's restrictions on activity; healthcare companies developing innovative treatments in biotechnology and specialty medical device suppliers supporting Covid-19 testing; technology and consumer discretionary companies that provide critical components for electric vehicles; as well as financial stocks enabling the growth of e-commerce.

That being said, we believe technology companies that benefited from the acceleration of secular growth trends, including cloud computing and remote connectivity, should continue to thrive and are maintaining significant exposure to these names.

In terms of risks, financial markets are in an unusual position with near-zero interest rates that have made bonds less attractive compared to stocks. This has also created risks equity investors may not be aware of.

Valuations for some growth stocks are at overbought levels and should bond yields rise meaningfully, that could lead to multiple compression and losses.

But it is hard to tell how investors will behave until we get rid of the current distortions in the market and back to a more normal economy.

Ben Kumar, senior investment strategist at 7IM

Asian equities

Asia is going to greet 2021 in good shape. While the US and Europe can certainly see the light at the end of the tunnel, Asia is steaming ahead in the open air.

Most nations are heading for pre-pandemic levels of growth, interest rates and unemployment.

Of course, prices reflect that already to some extent. The Shanghai stockmarket is up more than 20%.

But it is not just China. South Korea, Taiwan, Japan, and even Vietnam and India are all positive in 2020 - which cannot be said every year.

It goes to show how important solid fundamentals can be. Asia, more than any other area of the world, has solid demographics - a reasonably young population, and a large middle class.

Demand has stayed high - for consumer goods, and for services too. Covid-19 will soon be dispatched to history as another obstacle overcome - larger than SARS or MERS, but ultimately a speed bump, not a road block to growth.

We think Asia is hugely important, not just in 2021, but over the next few decades. China is currently dominating the sphere of influence, but as India, Pakistan and Bangladesh continue to grow in size (both economically and in terms of population), there could be another locus of power to keep an eye on.

Wherever you look in Asia, it is like seeing accelerated versions of developed world trends. The digital economy is already embedded - using cash in large Chinese cities is actually quite challenging.

Environmental concerns are at the top of the list. Pollution is affecting billions of people, so the pressure is greater to find a solution.

And the shift to online is much easier when the offline economy was not large in the first place. If you do not have a high street-style culture, losing it does not matter. Any investor ignoring Asia is not seeing the big picture.