Equity Strategy Lessons for 2021
• Following the massive liquidity injections seen in 2020, a challenge for investors will be to understand and measure it better.
• There is no doubt now that Central Banks have become dominant players in financial markets. We identify two potential challenges to this. But for now, the CRIC (Crisis-Response-Improvement-Complacency) framework will help guide our thinking.
• In credit, manufacturing, services, and inflation measures, this was not a normal recession. It will probably not be a normal recovery.
• US inflation breakevens have had important historical correlations. This was true in 2020 and should be watched in 2021.
• ASR’s Composite Global Equity Valuation Composite has swung from being ‘cheap’ in March 2020 to being ‘expensive’ today. Resist the temptation to turn a blind eye to long-standing relationships.
• ASR’s Asset Allocation Survey indicated record uniformity among investors behind the Reflation trade. The lack of diversity in the consensus narrative for 2021 is something to worry about.
• Some believe it is too premature to be calling for a new policy regime, but there is precedent, with implications for investments.