- The world is going to change in 2021! We will have had Brexit, there will be a new president in the White House, and Covid-19 vaccines will be in roll-out. So, while headwinds from 2020 still need to play out, we can be optimistic. Expect a big rebound from corporate earnings crushed by the virus, and support from fiscal stimulus, good money availability and recovering companies and consumers.
- Europe has a huge range of strong companies: with robust franchises, they are globally competitive and have fantastic pricing power and great management. Earnings will rebound and the survivors that were oversold in 2020 will bounce. But there are some which won’t survive or will be hobbled by the crisis. So, laggards and leaders – performance, as ever, needs to come from stock selection.
- Brexit could disrupt European as well as UK businesses. Although at the time of writing a deal is yet to be agreed, whatever the final outcome, potential disruptions could still lurk.
- Joe Biden could set a common global agenda in 2021 with the UN Climate Change Conference, and with a new US stance on climate change. This, together with China’s recent announcement of net zero carbon emissions by 2060, could herald a consistent global policy – so it is crucial to reassess environmental positioning globally.
There are reasons for optimism in 2021. Forget a U-shaped recovery; the letter we look for in 2021 is V, which stands for vaccine. Our baseline scenario is that vaccines roll out across Europe in early 2021, allowing business and consumer activity to start to return to normal. But even if there are delays and further lockdowns, the economic impact of Covid-19 should ease markedly in 2021.
Aside from the vaccine, two other themes will influence European equity
markets as we start 2021: Brexit and the impact Joe Biden will have as the new US president.