Equity strategy and market outlook – April 2021

In this month’s strategy piece Alastair believes that where vaccination programmes have been implemented swiftly, COVID-19 cases have been falling sharply. In only a few months, other regions in Europe will have caught up with the UK and cases should start to drop even as lockdowns are eased. Equity market volatility has fallen as the evolution of the pandemic becomes clearer. With increased certainty, the full effects of the fiscal and monetary stimulus measures are now on offer. The benefits are likely to be felt most strongly in the real, physical economy which coincides with where we believe the value in financial markets currently lies. 2021 and 2022 are likely to deliver well above trend GDP growth in developed markets, provided COVID-19 remains contained. Furthermore, consensus earnings forecasts indicate significant growth in corporate profits lies ahead. With monetary policy likely to remain accommodative until later in 2022, the fundamental outlook for the value segment of the market remains strong. He remains neutral on global equities in aggregate but favours the value segment of the market. Valuations for the fastest growing segment of the market remain significantly in excess of their long-term averages, which suggests future returns may disappoint. In contrast, while valuations for the value segment of the market are no longer at bargain levels they continue to be supported by an extended period of fiscal and monetary stimulus, GDP and profits recovery.

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