In this outlook, BNP Paribas Asset Management (‘BNPP AM’) seeks to help investors navigate the next phases of the pandemic, the legacy of the lockdowns and the coming economic recovery. BNPP AM also considers how solutions to the climate crisis can be found at the same time as the world tackles the social and economic problems laid bare by the pandemic.
A sustainable recovery
We devote a significant section of our outlook to the opportunities that we believe a green economic recovery can offer investors, including the energy transition and more specifically green hydrogen.
Investment themes for the long run
Our investment themes for 2021 have both a sustainable angle and a focus on long-running trends, including healthcare improvements and disruptive technology & innovation. Regionally, the spotlight is on China, which warrants a standalone allocation in multi-asset portfolios.
Macroeconomics and markets
- BNPP AM expects a rebound in growth in 2021.
- Central bank asset buying supports risky assets, but the resulting high valuations may limit future gains.
- In the hunt for yield, emerging market debt and credit offer the best opportunities within fixed income.
- A weaker dollar, strong Chinese growth and improved trade relations should boost emerging market equities.
Among our expectations for 2021
- The global economy faced a crisis of unprecedented magnitude following the coronavirus pandemic lockdowns. A sharp global contraction in early 2020 and a possible renewed dip in Europe in the fourth quarter should nonetheless be followed by a rebound in growth in 2021.
- Several vaccines for COVID-19 should become widely available in 2021, but until then countries will increasingly need to ‘live with’ the virus as repeated lockdowns will not be a sustainable coping strategy.
- In 2020, advanced economies loosened the monetary and fiscal reins most spectacularly. Debt-to-GDP ratios soared, rising for many countries by more than they did in the years after the Global Financial Crisis (GFC). Major central banks have largely financed the increase in budget deficits, monetising an expanding national debt, much as Japan has done.
- How will all this debt be paid for? The appropriate historical parallel is the post-World War II period, when central banks capped bond yields at levels well below the trend GDP growth rate to gradually reduce the national debt as a proportion of GDP. Government bond yields will remain low over the long term, presenting a buying opportunity in the event of a significant rise in rates.
- Global growth may well be lower after the pandemic is over. Inadequate fiscal stimulus would leave marginal sections of the economy vulnerable to collapse. Such an outcome would test the Goldilocks paradigm of modest growth, low inflation and supportive central banks that has supported asset prices since the 2008 GFC.
Today we face three interconnected crises – health, economic and climate. The instability provoked by the pandemic presents a window of opportunity to pivot in a new direction. Long-term environmental viability, equality and inclusive growth are essential pre-conditions to a sustainable economy. By taking a holistic, systemic, long-term view, we are less likely to be surprised by crises and better able to manage them.
For in-depth insights into what’s next for the global economy and markets, read our 2021 investment outlook, ‘Legacy of the lockdowns’ or view our comprehensive outlook pdf.