Equity strategy and market outlook – March 2021

In this month’s strategy piece Alastair believes that the prospect of further lockdowns in continental Europe has put the equity ‘re-opening trade’ on pause. With such a slow pace of vaccination, the region was increasingly vulnerable to a third wave as new more infectious variants gained traction. A third wave would postpone the final recovery from COVID-19 and could have a notable impact on international travel and tourism over the summer. In contrast, where nations such as the UK have pushed ahead aggressively with vaccination programmes, they are reaping the benefits. While we expect the decline in UK case numbers to moderate as lockdown restrictions are released, a third surge in cases is much less likely. Rising yields on US government bonds have caused angst in recent weeks but should not unduly worry the value investor. The US Fed has only recently made it clear that hikes in US interest rates are unlikely until the beginning of 2023 and asset purchases will remain at current levels perhaps until 2022. These accommodative financial conditions are likely to maintain lower than usual risk premia on equities. We remain neutral on global equities as the ongoing earnings recovery is balanced by relatively high market valuations. We continue to believe that value sectors are likely to outperform this year, despite the recent bump in the road. The EU vaccination delays are unfortunate but temporary and there is clear potential for a catch-up to US and UK inoculation levels in only a matter of months.

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