Investment Insights Q4 2020

As COVID-19 continues to affect our lives and influence economic activity around the world, there’s lots of uncertainty about what the future holds. Localised outbreaks and lockdowns are possible anywhere until a vaccine is found, with the level of unemployment likely to be the key factor driving the pace of the recovery over the next couple of years.

Economic weakness is likely to continue into next year, with the most optimistic forecasts for global growth still well below pre-pandemic levels. Our first article on page 3 examines the contrast between the macroeconomic environment and company earnings expectations, which remain surprisingly high for 2021.

On page 5, we explore whether emerging market debt is now being perceived as less risky. Unprecedented economic conditions mean many developing regions have been able to take potentially inflationary emergency measures without being punished by investors. Could this mark a paradigm shift for the developing world?

In a recent statement, the US Federal Reserve (Fed) indicated it will not raise interest rates until inflation has stayed above 2% “for some time”. The shift, which we discuss on page 6, suggests rates are likely to remain low for a long time. We consider whether such measures could unleash rampant inflation, as feared by some investors.

On page 8, we explore the growing popularity of specialist ETFs that are tapping into global mega trends. These funds adopt passive or rules-based guidelines to invest in equities that provide exposure to these themes. Although this type of investing can be successful as a long-term strategy, it’s always important to do your homework.

Lastly, we take a closer look at how an increasing number of corporate bonds are falling down the ratings scale as default rates rise. Following the global economic lockdown in March, ratings agencies responded with a wave of downgrades — but should investors be worried?


We hope you enjoy this edition of InvestmentInsights

Julian Chillingworth
Chief Investment Officer

Read the latest version of Investment Insights, Q4 2020

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