Investors look set to put cash to work
With the US presidential election seemingly done and dusted, and after positive vaccine news, we cast our eyes forward to what will be the next driver of markets. In terms of big themes there is nothing immediately apparent. Yes, the Brexit story rumbles on and it certainly matters for sterling, but it’s not the great influence on global markets that it was four long years ago.
Complacency is a worry
We are concerned that there is a complacent consensus out there. Deutsche Bank’s recent investor survey suggests most are bullish. It’s a stance we share along with major investment banks, so isn’t that good news? Well, it is if it means investors are about to put their money to work. If they’re comfortable with their portfolios and are merely optimistic on where things are heading from here, however, it becomes a bit more worrying. For example, we are nearly through the Q3 reporting season for major companies and it’s been another impressive one, with companies across the world bettering analysts’ expectations by some margins. Yes, expectations were very low, and it is worth noting that those beating predictions weren’t rewarded with big gains but those that disappointed, suffered badly. The evidence suggests that investors were expecting good news.
Investors set to reallocate their cash?
So, where do we go from here? I will be watching markets closely over the next week or two for signs that institutional investors are moving back into the market. I’m still optimistic and believe that many hesitated in putting cash to work because they were nervous ahead of the US election and vaccine results.
If this view is correct, then we should see markets gradually rise over the next few weeks. The news on the vaccine has been good and it seems that many investors have been biding their time before committing further to the market. As they decide how to position their portfolios for 2021, I expect most to take a pro-risk stance. Yes, we’ll get bad news on the world economy, especially Europe, as a result of the re-imposition of tough lockdowns. And yes, it’s hard to see the vaccine news getting any better than the stunning first set of numbers from Pfizer. But the outlook for the world is a road back to normality, and while it will take time, I feel we can be reasonably confident that medical science has handed us the key to the door of full recovery.
Themes for thought
But what will be the major themes within markets? Once again, it’s hard to see much departure from the rotation/reflation theme. Those companies that suffered most from the virus – travel and leisure – should benefit most over time. Of course, many were in trouble before the pandemic, but they still seem to offer upside from here. Geographically, emerging markets outside of China (which has already recovered from the virus) should also do well.