But what can go wrong? Low rates, inflation under control, demand in strong recovery almost everywhere after the rigors of the pandemic. It is difficult to find reasons to be pessimistic around the markets on the eve of 2021, the year of the ox, an animal that loves to work hard without ever getting tired. Almost a symbol of the desire for recovery after the tribulations of the leap year. But this desire must be based on a solid fact: trust in one or more vaccines capable of tackling and taming the pandemic. “It is the necessary condition – he explains Antonio Cesarano, Intermonte strategist – to talk about recovery. The big investment houses work from the perspective that, thanks to vaccines, starting from the second quarter, we can begin to win the war against the pandemic. But, as we have seen with the English variant of the disease, possible steps backwards cannot be ruled out before we get the better of the pandemic which is far from defeated".
THE BULL ADVANCES IF THE VACCINE WORKS. BOOM FROM THE SUMMER
In short, at least throughout 2021, financial operators will have to consult the health bulletins even before the notes on the economic situation. He is convinced of it too Massimo Trabattoni, head of Italian Equity at Kairos. “With the news of the effectiveness of more than 90% of vaccines and the start of their distribution, thinking about 2021 means above all trying to predict the speed of distribution of the vaccine necessary to allow national governments to completely reopen the economy and the end of social distancing measures”. Hence a forecast on the timing of the recovery: "We can therefore imagine - continues Trabattoni - a year with two speeds, a first quarter and perhaps part of the second (it depends on how quickly the vaccine will be able to slow down the contagion in a decisive way and keep it under control ) still conditioned by the lockdowns, and a second part of the year in full recovery where we can also expect that the savings due to the impossibility of making certain purchases during the last few months will be partially consumed, as well as having a very favorable basis for comparison ”.
POLITICS STEALS SPACE FROM CENTRAL BANKS
The action of the authorities will make the recovery of the markets possible. With a novelty of no small importance. The central banks, in recent years the main if not the only support of the markets, are handing over the initiative to the political authorities. Second Davide Andaloro, senior market and portfolio strategist at Goldman Sachs Asset Management, in 2021 “the recovery of the cycle will continue, with the global economy benefiting from strong fiscal policy support, from the impetus deriving from the recovery of activities after the lockdowns caused by the first wave of the pandemic and from the abundant space to fill the production gap generated due to Covid-19”. It is a compact movement on a global level. Japan was the first to move at the end of the summer (700 billion dollars in incentives). Following the European Recovery Plan. Waiting for the action of the new US president Joe Biden who has entrusted Janet Yellen, new minister of the Treasury, with the honor of relaunching the public investment machine in infrastructure, an issue that Trump has talked about a lot without doing much (except for a few sections of the wall anti-immigration). Contrary to what Biden promises, who intends to allocate more than two trillion to energy and the environment, favoring companies, not necessarily American, but operating on American soil.
A LOT OF CHINA, BUT ONLY CLASS A
Finally, China. The giant from the East, which should reach and exceed the size of the American economy as early as 2028, is about to make a major effort in view of the next five-year plan. And the effects are bound to be seen as early as March, after the Lunar New Year. And on this point the managers are all in agreement: “China will continue to be the engine of the global economy – he says Alessandro Tentori, investment manager of Axa Italia – Thanks to 8% GDP growth, Beijing should fuel the rebound of all of Asia and advanced economies through its dense network of trade exchanges”.
"China presents itself to the world - comments Cesarano - not only as a major exporter but also as a large market from which one cannot stay out, even if I do not exclude trade tensions even in the Biden era". But is it to be trusted? Aren't you taking excessive risks? “The guarantee lies in the growth rate, two abundant points above the global figure. The advice is to focus on class A shares, linked to the internal market”.
Proceed with caution, therefore, waiting for the victory over the Covid-19. “The search for yields – observes Tentori – should push high yield and emerging bonds. And it will be interesting to understand how far the valuation of growth stocks can be pushed, in particular the whole high tech, software application and biotech sector”, after the 2020 race and the vaccine effect that took biotech stocks to the stars.
A WINNING HORSE? CYBERSECURITY
But after the 2020 race, what margins of growth can stocks like Tesla have, up 700%, or other giants, from Apple to Amazon to Netflix that boast triple-digit performances? Are there any technological sectors that are left behind? “In 2020 – notes Cesarano – the best-known titles, from Amazon or Google, pulled the race. In addition, the sectors related to the cloud stood out. A technology that already exists but which, thanks to the lockdown, has developed a lot as well as artificial intelligence, driven by the need to always have our data available. These are sectors that have done better than the Nasdaq 100”. And now? “One issue that has lagged behind is security. Yet with the Next Generation the incidence of digital will grow together with cybersecurity. It could be the theme of the year: we've already read about the attacks by Russian hackers. Trade wars could escalate into acts of computer piracy.”
ITALIA SUPERSTAR, THE SPREAD SAYS IT
Let's go back to old Italy. “In addition to the various positive factors linked to the Next Generation Fund – concludes Trabattoni – Italy should benefit from the spread which remains at levels never seen in the last 10 years, a sign that the market at the moment blindly believes in Europe's ability to be able to avoid other crises involving the sovereign debt of member countries. This is also thanks to the radical change given by the Recovery Fund, the first European instrument financed with the issuance of Community debt, which will help revive the economy of the Continent and in particular the Italian one, given that our country should receive 209 billion in the coming years . But it is important to remember that 2021 will not be a year of growth in an absolute sense, but rather one of making up for lost ground".
INFLATION, THE NUMBER ONE UNKNOWN
A detail of no small importance that brings us back to the initial question: are we really sure that something won't go wrong? It is the question that the Financial Times addressed a wide audience of managers who, in summary, listed the possible misfortunes:
- the recovery of inflation with a sudden and inevitable increase in interest rates;
- new and unexpected flare-ups of infections;
- excessive faith in forecasts which, on closer inspection, are all alike.
“The greatest risk – he agrees Mario Seminerio on his blog Phastidio – is for demand pent up during the great hibernation of 2020 to be violently released, causing inflationary pressures. What would happen under even moderate inflationary pressures if all bond investors tried to get rid of assets? A disorderly flight towards the exit, which would overwhelm the global monetary and financial order and equilibrium. Simple, central banks would be forced to intervene again to avoid chain bankruptcies, private and public". In short, the path is narrow. But it's worth going through it.
