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Virtus Viewpoints - Q4 Vontobel

Promising Prospects for 2021

Global equities gained strongly in the fourth quarter as positive news on vaccine development pushed many markets to new highs. Returns were broad-based across sectors and regions.

The recent surge in infections in both the U.S. and Europe suggest that economic risks and heightened market volatility are likely to prevail near term. At the same time, virus-induced disruptions have accelerated some important business trends that were already underway, such as the shift to e-commerce.

Momentum characterized global equity returns in 2020, fueled by low interest rates and excess liquidity. However, elevated speculation in parts of the market presents risks to investors. These risks include a surge in special purpose acquisition company (SPAC) issuance. SPACs are “blank check” companies that raise billions of dollars but face less regulatory scrutiny and fewer restrictions than traditional IPOs. A raft of new listings also feature companies that are not yet profitable. In addition, large flows of capital into private equity are creating competition for public companies seeking attractive acquisitions. Lastly, excess capital in so-called “green” initiatives has pushed valuations ahead of fundamentals in environmentally focused companies.

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Index definitions:
MSCI All Country (AC) World measures equity performance of developed and emerging markets. MSCI EAFE® measures developed foreign market equity performance, excluding the U.S. and Canada. MSCI Europe measures equity market performance of Europe’s developed markets. MSCI Japan measures performance of the Japanese market’s large and mid-cap segments. MSCI AC Asia Pacific ex Japan measures equity market performance of Asia’s developed and emerging markets (excluding Japan), Australia and New Zealand. MSCI Emerging Markets measures equity market performance in global emerging markets. MSCI AC World ex US measures equity performance of developed and emerging markets, excluding the U.S. S&P 500® measures performance of 500 of the largest U.S. companies. All indexes are free float-adjusted market cap-weighted and calculated on a total return basis with dividends reinvested.

The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.

Past performance is no guarantee of future results.

All investments carry a certain degree of risk, including possible loss of principal.