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2020 featured unprecedented shutdowns of economic activity, a fusion of monetary and fiscal policymaking and a vote for new leadership in the US. In 2021, economists at UBS recommend that investors diversify for the next leg, hunt for yield and position for a weaker dollar.

Key quotes

“We expect equity markets to continue moving higher in 2021, but think some of 2020’s laggards will ‘catch up’. We think 2021 will be about going cyclical, small, and global as the sectors and markets most heavily affected by lockdowns start to revive. US stocks, particularly large caps, will start to underperform other markets at some stage in the coming year. The postpandemic recovery in corporate earnings will be stronger in the more cyclically-exposed Eurozone and UK markets, while valuations are more favorable in emerging markets. Some of the areas with the most potential to ‘catch up’ include US mid-caps, European small- and midcaps, select financial and energy stocks and the industrial and consumer discretionary sectors.”

“We expect interest rates on cash and bond yields to stay at very low levels for the foreseeable future. This makes it harder to find income and investors will need to consider being more active or finding alternative means of earning income. We think investors can still find positive real returns in emerging market USD-denominated sovereign bonds, Asian high yield and bonds in the ‘crossover zone’ between investment grade and high yield, globally.”

“We think it is time to position for a weaker dollar, due to the elevated US twin deficit, a recovering global economy and the erosion of the US dollar’s interest rate advantage over the rest of the world. We see medium to long-term upside potential in the euro, British pound, Swiss franc and Australian dollar against the US dollar. We think investors should diversify across G10 currencies, or into select emerging market currencies and gold.”

Expert score

5

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