KGI 2021 Outlook

2021 economic recovery intact; we recommend cyclical value stocks and non-US markets

• Global economic output may return to the pre-pandemic level in 2021, but near-term growth is unlikely to realign with the old trajectory. Economic performance will hinge on the pandemic, government reactions and vaccine development.

• The EU and US could step up restrictions to counter rising infections in winter, and that could disrupt the recovery. A better understanding of the virus, financial relief and vaccine development will prevent substantial stock market corrections. Mass vaccination should take place in 2H20. The duration of vaccine protection is critical.

• The global economy will see a V-shaped recovery once the pandemic ends for good.

• The Fed will be more tolerant of inflation following the proposal of the average inflation concept in August. Preemptive rate cuts seem less likely. The Fed’s new approach to making monetary policies will have a more profound impact on the market in the later stage of economic expansion.

• We prefer cyclical value stocks, like commodity and industrial names, for their close correlation to economic performance. We also recommend non-US (EU, emerging Asia) markets, as: (1) the economic reset may not be as favourable to tech stocks; (2) emerging markets could ride US dollar weakness and rising commodity prices; and (3) non-US markets offer better valuations.