Webinar: what's next for markets and the economy?

The global economy is gradually recovering from the impact of coronavirus. Some data point to a sharp "V-shaped" rebound while other indicators suggest that there will be longer-lasting scarring from the pandemic.

Political risks on the horizon  

Despite some brinksmanship, we expect that there will be a UK-EU trade deal. This could lead to a rally in sterling and as a result we have slightly reduced our underweight position in the UK currency. 

Biden is now clear favourite to win the US election, according to polls. We think the best case scenario for equities would be a Biden victory and a divided Congress (Democrats retain control of House of Representatives and Republicans retain the Senate).

What we are seeing in markets   

Earnings estimates for global equities have recovered sharply since March. Profits for companies in the MSCI World Index are now expected to fall 20% this year and rebound by 29% in 2021. This would leave them 5% higher than at the end of 2019. This could suggest investors are slightly overoptimistic on the pace of recovery. 

The technology sector continues to perform very strongly. It now accounts for almost 25% of the value of the S&P500. However, we do not think this is a replay of the dotcom bubble: the biggest tech companies are expected to generate 20% of S&P 500 earnings by 2023 and have a much more attractive growth and profitability profile than the rest of the index. 

We continue to like gold as a diversifying asset within portfolios. It is a good inflation hedge – and also stands to benefit from increasing money supply, rising investor demand and falling production. 

Key themes for the decade ahead  

Technological Innovation We have seen two years of digital transformation in two months; this opens the door to more opportunities within the technology sector. 

Rising Healthcare Spend Demographic trends were already leading to higher healthcare spending; upgrading healthcare systems in the wake of the pandemic will bolster the trend.

Economic Populism and Rising Government Debt Governments may print money and spend it directly in the economy. Infrastructure companies could be key beneficiaries.

Sustainability Companies are facing growing pressure to consider their impact on people and the planet. We favour those business which help lead to positive outcomes.  

If you were unable to join this live webinar but would have liked to attend, more will be held in coming weeks. Please look out for invitations from your usual contact.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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James Brennan

James Brennan

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