Important information: The value of investments and the income from them can go down as well as up, so you can get back less than what you invested.
Revisions to economic growth forecasts have come en masse and quickly this year, suggesting that there remains significant uncertainty about the global outlook. The task was exceptionally difficult. Forecasters were required to consider not only each country’s rebound potential based on longer-term fundamentals, but also Covid-19 cases and vaccination rates.
The latest revisions came this week from the OECD. With global economic activity already back to pre-pandemic levels, growth is now expected to reach 5.8% this year, well above the 4.2% projected in December. Among the world’s major nations, the United States and China are expected to lead with growth of 6.9% and 8.5% respectively1.
The OECD warns, however, that the recovery will be uneven, due to the risk of new coronavirus outbreaks with much of the world’s population not yet vaccinated. Among the world’s leading economies, Japan stands out in this regard, with only 2.6% growth expected this year.2.
From an investment perspective, a degree of uncertainty often creates opportunities. An important task this year, like any other, is to identify where attractive growth opportunities intersect with overly pessimistic expectations.
The last few years have shown that opportunities can arise in relatively unexpected places. In 2019, Greece stood out. Last year, Vietnam, South Korea and Denmark – the latter with its recession-resistant healthcare and pharmaceutical companies – were among the best places to be.3.
As the small group of tech stocks that led the S&P 500 higher for much of 2020 has shown, owning the right stocks can be just as important as investing in the right market. Investing globally effectively expands the network, allowing investors to gain exposure to the best companies, no matter where they are located. With the UK representing less than 4% of the MSCI World Index, it is statistically unlikely that most world leaders are British.4.
Japanese automakers already have a huge lead in hybrid and all-electric vehicle technologies, and we’ve all heard of Tesla and its remarkable share price history. However, amid booming electric passenger vehicle sales in China, it was Chinese automaker NIO that stole the show in 2020 as one of the world’s top-performing stocks.5.
So far in 2021, European markets have been shining, although Europe has fallen behind in vaccine deployment and the OECD assessment that much of the region could take another year to rebound . This does not seem to have deterred investors looking for a good deal. Even after their recent big gains, European companies are trading at a discount of around 19% to their US counterparts based on the amounts that companies in both regions are expected to earn over the next year.6.
Still, a number of European companies have world-class brands that should be doing well as consumers look to roll out the savings they’ve built up in 2020. Demand from fashion-conscious shoppers in developed and emerging markets for European luxury goods already seems to be rebounding. . LVMH (Louis Vuitton Moët Hennessy) says sales of its leather goods business increased 37% in the first quarter compared to the same period (before the pandemic) in 20197.
Emerging and frontier markets are trickier. Dispersed populations and compromised logistics in some cases count against the smooth deployment of vaccines and the OECD expects economic recovery to be delayed as a result. In addition, countries deemed to have handled the coronavirus well – such as China, Taiwan and South Korea – have already seen their stock markets recover sharply.