Fundamentals not euphoria drive markets
Contrary to popular perception, markets were driven by fundamentals in 2020, not euphoria. Companies exhibiting strong growth and quality outperformed companies with opposite characteristics by a wide margin.
2020 GLOBAL EQUITY MARKET RETURNS BY QUINTILE
Source: FactSet, MSCI, data from 12/31/2019 to 12/31/2020 based on MSCI All Country World Index. Past performance does not guarantee future results.
Tech dominates for good reason
With accelerating adoption of cloud-computing; digital business-to-business applications; and online retail, health care, education/learning, and business services, technology-related company earnings are driving overall earnings growth. Whereas in 2009, investors could gain similar returns with or without investing in tech, today, excluding tech significantly reduces total earnings growth due to tech's outsized contribution. A strong earnings rebound across most sectors is expected in 2021, with tech continuing to drive strong earnings growth given its increased influence across other sectors.
EARNINGS GROWTH INCREASINNGLY DRIVEN BY TECH
Source: FactSet, MSCI, Jennison; data from 1/1/2009 to 12/31/2020. Past performance does not guarantee future results.
Winning secular themes for tomorrow
Digital transformation of the enterprise: Companies are understanding that to remain competitive they must value technology's strategic importance as a critical component of business, not just as a source of cost efficiencies. As a result, businesses are making the kinds of investments that are likely to ensure the trend's perpetuation with cloud-based applications transforming IT budgets globally.
Digital transformation of the consumer: Consumers have adapted even more rapidly, with consumption behaviours shifting dramatically over the past year toward digital. Jennison believes this mass adoption and new baseline will be the foundation for continued superior growth for the right companies. They believe large, global-oriented total addressable markets provide an ample runway for long-duration top- and bottom-line growth, with many disruptive trends expected to double over the next 3-5 years. Historically, earlier stages of mass adoption have spurred more innovation, greater ease of use, and an expansion of the ecosystem, which in turn has kept the virtuous cycle spinning with yet greater adoption.
E-commerce is a prime example of a trend that has accelerated globally. U.S. e-commerce adoption was being pulled forward approximately two years (~24% expected in 2021) in 2020 while penetration in Latin America is expected to grow to 11.5% by 2025 (currently at 7%), reaching a critical threshold for inflection in its growth trajectory1. While China has high rates of e-commerce adoption, other Southeast Asian countries are just starting to embrace the trend, creating long runways for growth for e-commerce companies as well as technology enablers such as payments, cloud-based apps, etc. that facilitate or enhance digital capabilities and services.
Attractive areas to find future leaders
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1 Source: Morgan Stanley, Euromonitor.
The MSCI All Country World Index (ACWI) is a market capitalization-weighted index designed to provide a broad measure of equity-market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets.
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