2021: A calm after the storm?
Discover the latest UBS Global Risk Radar.
At a glance
The COVID-19 pandemic has caused irreversible socioeconomic changes on a global scale. However, the post-pandemic world of 2021 still promises a return to some form of normalcy. We believe next year will bring back more traditional market risks, and we expect three main risk topics to dominate. First, recovery from the COVID-19 pandemic. Second, economic stimulus and its effects on growth and inflation. And third, geopolitics, with an emphasis on foreign policy under the new US administration. Discover what the three topics mean for your portfolio and explore our updated market scenarios and investment implications.
Three risk themes in 2021
Throughout 2020, ups and downs in market uncertainty could be easily attributed to developments around one of two topics: COVID-19 and, more recently, the US election. In March, equities experienced a record pace to reach bear market territory as fears around the pandemic peaked. The decline was followed by a similarly record-fast rebound as governments deployed unprecedented monetary and fiscal measures to battle the economic fallout. Market volatility reached the highest level since the global financial crisis (GFC) in 2008 and then declined, but it remains elevated due to US election uncertainty and the economic consequences of renewed virus outbreaks.
In 2021, we expect markets to gravitate back toward more "traditional" risks. Globally, we expect the following three risk themes to dominate:
Market scenarios and investment implications
Overall, despite the recent market rally, we continue to believe that stocks will move higher from here. The S&P 500 is moving closer toward our central scenario target of 3,800 by June 2021. However, in our upside scenario, we would expect to see the S&P 500 trading at 4,000 by June. Latest vaccine news reduces the downside risk of no effective vaccine being deployed in 1H21, while making the upside scenario look more likely. In our upside scenario, we would also see credit spreads tighten further, the USD weaken, and the gold price decline.
We maintain a preference for equities over high quality bonds, and reiterate our view that investors should:
- diversify within equities for the next leg higher
- use sell-offs to build exposure to the green agenda
- look for secular growth beyond COVID-19
- build long-term positions (read more in the CIO Monthly publication).
For more on the scenarios outlook and investment implications, download the full report below.
Global Risk Radar "2021: A calm after the storm?"
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