Get ready to boom, zoom and consume.

Major economies come roaring back. Effective vaccines, record government support and pent-up consumer demand are fueling a historic turnaround for the global economy. The surprising pace of growth caused the International Monetary Fund to more than double its 2021 US GDP estimate to 6.4%, from 3.1% six months ago.

Concerns about inflation and US rate hikes seem exaggerated. US inflation should spike in coming months as stimulus-induced demand meets COVID-restricted supply, says economist Darrell Spence. As stimulus wanes and the economy fully reopens, US inflation should return to around 2% annualised. Rate hikes seem likely in 2023.

 

Value or growth? Balance them both.

Value stocks get a booster shot. “Vaccine day” on 9 November 2020 marked a turning point for cyclically sensitive stocks in the financial, energy and travel sectors. Those companies that used the crisis to innovate and improve operations should be well-positioned as the economy reopens.

Long-term growth trends are alive and well. Even after the acceleration in all things digital during the pandemic, there are still long runways for growth in cloud services, digital payments, streaming entertainment and more — all powered by semiconductors.

Equities provide a wide-range of investment opportunities. An acceleration in digitisation, a release of pent-up demand and improving corporate governance standards are drawing investors to US, European and Japanese equities. Differentiating between the potential winners and losers will be key.

 

Whether yields rise or fall, bonds can still add value.

Bonds can still deliver in an environment of rising interest rates. Over the past three decades, investors have seen many rate hikes and yield spikes. Even during the five sharpest 10-year yield spikes over that time frame, the US aggregate bond index remained positive over the next two years.

Higher yielding bonds continue to offer attractive opportunities. Blending high income sectors by including emerging market debt can potentially capture much of the yield while reducing overall risk.

Emerging market debt is positioned to benefit from stronger global growth. Emerging markets could be set to ride the tailwinds of unprecedented global stimulus as it boosts exports and commodity prices.

For illustrative purposes only

As at April 2021

Risk factors you should consider before investing:

• This material is not intended to provide investment advice or be considered a personal recommendation.
• The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
• Past results are not a guide to future results.
• If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
• Depending on the strategy, risks may be associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.