2021 stock market outlook

From record high share prices in February to the spectacular crash in March, the stock market experienced its fair share of ups and downs in 2020. But with the market almost recovered to where it was pre-COVID, what can investors expect as we head into a new year? We turned to DANIEL CHIEW, investment manager at boutique investment advisory firm Alto Capital, to find out.


Where is the market lying now compared to the record highs of Feb 2020?


We're still a little bit below where we were in February, or pre-COVID, but we're working our way back towards that record high. Based on how the market is currently tracking, I think we could probably get back there in early 2021.


So it’s fair to say you’re optimistic about the year ahead?


Yeah, I'm pretty optimistic to be honest. I think there are a lot of upside catalysts ahead in 2021, so there’s plenty to look forward to. We've rebounded very strongly, and I think with the same accommodative monetary and fiscal stance, the economic data continuing to rebound and the potential for a COVID-19 vaccine to be widely available, we should see the same momentum heading into next year.


What are the catalysts that will support the market?


A key catalyst we will be watching in 2021 is the COVID-19 vaccine and the ability to make an effective vaccine widely available throughout the coming year. There is a lot of hope hinging on herd immunity by the second half of next year so this is one we will be tracking closely.


It is clear that Joe Biden will be the next US President and the result has been well received by the market. We expect this will be a net positive result for markets moving forward and paves the way for a deal on further stimulus and potentially healthier international trade relations, particularly with China.


We are also expecting that the global fiscal and monetary stance will remain accommodative which should support equity markets.


What do you think the growth sectors will be in 2021? What's going to boom?


I think we're going to see a lot more of the same sectors performing well as we are right now. I think gold is still going to remain strong. Interest rates are going to remain low, and that's typically supportive for gold, and I also think the defensive assets are going to remain strong too.


The valuations on a lot of the healthcare plays and consumer staples look reasonable and in the current environment are still going to look good next year.


And with the recent coronavirus vaccine developments that has triggered the rotation out of growth into value, I think cyclical stocks and COVID recovery stocks (those hit worst by COVID-19), like travel and retail for example, should continue to rebound strongly into the coming year.


What would you be advising your clients to steer clear of right now?


Anything with a stretched balance sheet I would steer clear of, and any stock that has had management issues in the past, I’d also be looking to steer clear of.


What is investor appetite like as we head into the new year and beyond?


I believe it's going to remain strong. At the moment we're seeing a little bit of liquidity being taken out of the small caps, but that's just a general draw down of liquidity as we head into December. This should probably return to normal when we head into late January/February 2021.


What do you predict for the IPO market next year?


I think it's quite exhausted at the moment – there are a lot of companies that have been raising money in the back end of 2020, trying to rush it in before the end of the year. From our perspective, we get the feeling that there’s been a draw down in liquidity because of this, however we expect the liquidity to return once everyone is back for 2021, especially with the current risk-on behavior of investors.


What are the big risks facing investors in the short to medium-term?


There are two primary risks to the market in the short to medium-term. Firstly, the failure to roll out a safe and effective COVID-19 vaccine. As mentioned, the market is pricing in a successful roll out of a vaccine next year with herd immunity expect to be achieved in 12 to 18 months’ time. Anything less is a downside risk to the market.

Secondly, the economic recovery has been backed by a significant amount of fiscal support. If governments pull this support too early, this could have negative implications on the path of recovery and consequently the equity market.


From an industry perspective, what are you looking forward to most next year?


There's a lot of upside risks with the global economy returning to normal. There's a lot of money about, and the global economy is just coming out of recession, so I think there's a lot to look forward to, and I think the money is going to stay in the stock market.