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Perspectives 2021
Rebound
Perspectives
2021
Perspectives 2021
REBOUND
2020 saw the biggest pandemic since 1918 and the worst recession since the World War. It will lead to bigger
changes in our (social) life than any other year before. However, for all the negatives associated with the
pandemic and the continuing challenges we face, we have also seen the willingness of people to stand
together, to come to terms with what is required of them, and their ability to adapt to dramatically changing
environmental conditions and to sustain our socio-economic system.
At this point, most readers would expect a (by now rates of over 6 %. Countries have resisted the
traditional) summary of the theses discussed here: spread of the virus with massive restrictions on
The economic stimulus measures taken by public life, economic activity and personal rights.
governments and central banks seem sensible and From A for Australia to Z for Zimbabwe, lockdowns
effective; there would hardly have been any better were the order of the day, sometimes for more
alternatives. Against the background of the than three months. Politicians and central banks
signalled willingness to continue to do everything provided considerable support to mitigate the
necessary to maintain our socio-economic economic – and thus the social – consequences of
conditions, the economic environment should be the pandemic. In contrast to the financial crisis of
able to recover its strength again. Catch-up effects 2008/09, these measures were taken in a
are possible in a number of areas, which justify and coordinated manner, simultaneously and without
further support the advance of the capital markets. hesitation. To finance aid packages, governments
A well-founded assessment of the short-term ran up a total deficit of about 11% of global GDP in
prospects is not possible in any serious way 2020, while central banks provided a total of $5
because it depends on the success trillion in “fresh money” (among other things, to
of the response to the pandemic. Financial aid has significantly increased again since spring
In retrospect, 2020 was the big BILL. USD
cut, when the global economy Other G20
slumped like never before after G7
the end of World War II. According
to IMF estimates, the world
economy will have shrunk by over
4 % and world trade will have
weakened by over 11 %. China is
the only country that is able to
leave the pandemic behind with a Apr 2020 Dec 2020 Apr 2020 Dec 2020
mini-growth of about 1 %, which, Subsidies Loans/guarantees Subsidies
however, is also almost COVID-19 Financial
tantamount to a recession for a crisis
Source: IMF, Fiscal Monitor 04/2020 and 10/2020
country that is used to growth
Perspectives 2021
refinance those very deficits). Where existing quarter at the latest, and thus of an early and
agreements would have limited the desired new strong recovery of the economy. This would offer
debt (Maastricht criteria in the EU), they were a medium-term perspective for the majority of the
overridden. Where there was still room for interest working population to be able to earn secure
rate cuts (in the USA), they were made. The long- income again, without which the foundation of our
stalled euro bond is now also a reality. Whether all social existence together threatens to erode. Not
of these measures were actually necessary is hard least, the refinancing of the recently raised debt is
to know, even in retrospect. Taken together, they based on the ability to generate income.
prevented the global economy from falling back
into a protracted economic and financial crisis. The events on the capital markets in the past year,
which was very challenging in this respect, were
Central banks flood the market with fresh money again interesting, sometimes striking,
but in any case instructive. You
might be tempted to say “You're
looking younger than ever” as the
100 Mill. Yen
markets do not look like they are in
Mill. Euro the deepest crisis of the post-war
Mill. USD period. Knowing that there is a 5%
world recession, hardly anyone
would have drawn the conclusion
that many stock markets – with the
exception of the Euro Stoxx, for
example – would still exit the year
with a plus. On the contrary, those
who had low investments in
equities in March, at the time of
Source: FED, OECD
the first lockdowns, were happy.
The experience of the three previous recessionary
IN THE MIDST OF THE PANDEMIC
phases1 strongly suggested staying underinvested
Nevertheless, not all problems were solved, and in anticipation of an economic slump of historic
many were merely postponed to the future. dimensions.
International public debt has reached a new level, 1 Mean loss during the comparatively weaker recessions of
and dealing with it will weaken the economy’s 1990-91, 2001, 2007-09:
potential for years. Productivity in many sectors S&P 500 28 %, DAX 38 %
may be permanently affected, and some sectors of
the economy will probably never return to their Once again, however, the markets were impressed
pre-crisis levels. In spite of all this, and despite the by the central banks’ determination to do
vaccination strategy that has been initiated in the whatever was necessary and even go beyond it as
meantime, we unfortunately cannot talk about a precaution. The further decline in interest rates
having the pandemic “under control”. and the signalled willingness of the
Currently, infection and mortality rates Some sectors of the central banks to refinance new debt
are at a peak that far exceed the peaks economy will probably indefinitely made it easier for
in the spring of 2020. New lockdowns never reach their pre- governments to adopt emergency
were and continue to be necessary. crisis levels again. budgets with substantial budget
They are tougher than in the spring and deficits, thereby selectively
will in all likelihood weaken the economic data of supporting the economy and compensating
the past year again. However, the vaccination people for the effects of the imposed recession.
campaign that has been launched worldwide is Setbacks in the fight against the pandemic only
associated with the hope of an ultimately caused irritations to the markets for a very short
successful containment of incidence rates, of far- period. We did indeed see in autumn that a
reaching relaxations of restrictions in the second worsening situation in incidence figures did trigger
Perspectives 2021
worse economic forecasts for 2020 and 2021. The Interest rates have remained low for a long
However, apart from a brief period of pre-election time. People have been saying this for a few years;
uncertainty in the US, stock market prices now it needs to be underlined. Christine Lagarde
continued to rise, as the markets expected further already pointed out at the end of October that the
support measures followed by what would ECB had sufficient intervention instruments to
probably be a delayed but even stronger rebound provide support where necessary. In doing so, she
of the economy. also called into question the unanimity principle in
the ECB Governing Council and the distribution
The current situation also appears to proportionality within the EU. At the
apply: Although we have not yet Market participants
same time, the US Fed has rejected all
overcome the worst recession of the see a future “after”
expectations that it would try to nip
last 70 years, market participants are the crisis. emerging inflationary tendencies in the
already looking ahead to the future bud. On the contrary: The inflation
after the recession. Since the vaccination target of 2% was redefined. Consequences would
campaign began, the situation appears to be be enforced only if this mark is exceeded on a
manageable and the crisis is now regarded as a multi-year average. Short-term overshooting of
foreseeable short-term disruption. The recent the mark would not be a reason for action.
exponential increase in the number of infections as
well as new lockdowns have not changed this Since last year at the latest, central banks have
attitude, because governments and central banks now entered into a liability union with
have also reacted clearly: In mid-December, for governments: With their willingness to refinance
example, the ECB increased its Pandemic even the extreme new debt by buying government
Emergency Purchase Program (PEPP) by 500 bonds, they have implicitly agreed to no longer put
billion, while the USA launched a 900 billion USD a price on money in the long run. A return to
stimulus programme just a few days ago. normal conditions, where interest was the price of
money, would trigger an economic disaster and
WHAT ARE THE ISSUES IN 2021? political earthquakes including state bankruptcies.
That is why inflation remains on the wish list of
It is safe to assume that 2021 will be dominated by those in charge, because on the one hand it is
the management of the pandemic and (administered in moderation) an enticement for
theeconomic recovery. The foundational effects the economy and on the other hand it is the basic
should not be underestimated here: In Europe, for condition for reflation, i.e. the possibility to
example, corporate profits fell by half in the devalue (government) debt via inflation at
second quarter of 2020. If they were to return to simultaneously low interest rates.
only 80% of their initial level in Q2
2021, this would correspond to an Rebound in sales and profits possible
increase of significantly more than
60%. In 2021 as a whole, profits
could rise by a good 40 % for
European companies and 25 % for S&P 500 turnover
American companies (where profits S&P 500 profit
have fallen less sharply). In order to
STOXX 600 turnover
see these kinds of rates of increase STOXX 600 profit
in the past, we have to go back to the
period after the internet bubble
burst. However, these expectations
appear realistic, provided that the
vaccination strategy achieves its
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4
anticipated success.
Source: Refinitiv, l/B/E/SPerspectives 2021
Apropos inflation: At the moment, we cannot see predicament if income is expected but this is
it anywhere. Capacity utilisation is currently low, supposed to be based on an investment strategy
employment figures are not declining more with as little risk as possible. At the latest since
strongly thanks to reduced-hours furlough and interest rates were also defined at zero in America,
comparable schemes. Consumption remains risk appetite has been the inseparable companion
subdued, and there is currently no scope for price of returns. The evergreen TINA remains at the top
increases across the board. In the USA, the of the charts. - There Is No Alternative, whereby
inflation rate was most recently 1.2 %, and in the “no alternative” once again means stocks. Even
EU - 0.3 %. Even in China, inflation has fallen previously staunch “deniers” will no longer be able
dramatically, from over 5% in January to just 0.5% to argue past this asset class and will have to
in November. This seems implausible given the accept higher risks. This will be true despite some
amounts of “fresh money”, but it can be explained expectations that achievable returns will flatten
by the lack of throughput in the real economy, across all asset classes. New risk-averse market
because money also has a viral effect. The participants may also contribute to the increase in
economic constraints affect money in the same volatility. However, especially against the
way as the virus – it is prevented from spreading. background of the expected reflation, equities
That is why so much of it is needed, not only to offer better opportunities to compensate for the
compensate for lost income, but also to prevent effects of currency devaluation.
the economy from collapsing.
The argument for stocks also remains superficially
superior to the argument that the
Inflation not an issue global economy as well as earnings
development will, on balance, take
a zero turn in 2020-21, while stock
market prices have already
increased in price. The valuations
are currently very ambitious. That
makes sense. However, Covid-19
will eventually disappear, while all
that money will stay in circulation.
The M1 money supply in the US,
Europe, Japan and China
combined has increased by about
Inflation USA
$6 trillion or 20% since February.
Inflation Euroland Inflation China
And some of it found its way not
Source: Fed, Bundesbank, global-rates.com
into the economy, but onto the
stock exchange.
It will not be easy to recapture the recent trend
towards massive debt again. That is because NOT FREE OF CONTRADICTIONS
governments have learned how easy it is, that it
costs nothing and that the reward is better public The comments made so far on interest rate and
opinion polls. Any new debt can be financed – at inflation expectations, on debt propensity and on
the moment. the tangible economic recovery are all
“mainstream” and are seen as such by the majority
NO RISK, NO RETURN of market participants. Many have internalised the
fact that Article 3 of the Cologne Basic Law2 has
Against the background of these basic also been a good stock market rule for equity
assumptions, we can no longer expect to receive a investors over the last decade.
waiver in the form of a return for supposedly risk-
free investments. Foundations, pension funds and
institutional investors worldwide are now in a
2 Cologne “Basic Law”, Article 3: Things have always gone wellPerspectives 2021
The credo here is that the central bank ultimately DIFFERENTIATION ATTEMPTS
redeems the capital markets from all evil,
whatever the cost. However, those who have In an attempt to avoid investments that could
settled into this opinion and invested their prove to be a mistake in retrospect, the relative
portfolios accordingly are no longer available as attractiveness of asset classes could be used:
buyers to drive the market further or to support it
in phases of weakness. If the majority thinks this Stocks appear expensive in an historical
way, it can be dangerous for the overall market comparison with themselves. Compared to
view. In this respect, the pro-stocks argument is bonds, however, they are cheap.
not free of contradictions. After the strong rise in growth stocks, value
stocks are still comparatively cheap.
After all, valuations are very high and rank at least Five tech giants from the 500-stock American
in the upper quartile for all asset classes – whether S&P 500 have risen exorbitantly, pulling the
for equities, real estate, bonds, or even bitcoins. whole market along with them. Things may be
Some classic valuation measures, such as the exaggerated for these five,2 while the other 495
price-earnings ratio (P/E ratio), are in some cases stocks have moved little in total and appear
no longer even discussed because they seem to be comparatively cheap.
useless. That is because in relation to the bond
In general, the American market seems more
yield, the approximately justified P/E ratio tends
expensive than Europe. Not only because the
towards the reciprocal of just under zero, i.e.
indices have performed better, but because
towards infinity. But other valuation measures,
from today’s perspective the potential for
such as the price-to-book ratio, are also high in
economic recovery may be greater in Europe.
many markets. The S&P 500 for example exceeds
A number of tech stocks have performed very
4 times its book value, which was last seen only
well because their business model proved itself
during the emerging internet bubble. While the
during the crisis and triggered rising sales and
markets fell sharply for several years at that time,
profits. Meanwhile, a number of cyclical stocks3
the stock markets in 2020 actually rose on balance.
have not yet been able to regain their pre-crisis
Finally, the risk is obvious that there could be levels. Provided the vaccination strategy takes
setbacks in the Covid-19 fight. The mutation hold, this could at least trigger an interim rally
appearing in England, for example, as well as the in the cyclicals.
recent lockdown of ten Beijing Sectoral favourite rotation towards the end of 2020
neighbourhoods due to newly
emerged foci of infection, calls for
Banks
a certain degree of humility in Energy
expecting all-too-fast progress. Insurance
Last but not least, we would do Finance
Industry
well to keep in mind that the Telecom
capital markets of this period rest Commodities
on the foundation of interest rates Consumption long-
term Performance Sept.-Oct.
that have been low for a long time.
Real estate
If this basic assumption were to Consumer goods
Performance Nov.-Dec.
falter, a reorientation would Utilities
probably be unavoidable. Technology
Health
Source: Bank for International Settlements /
Bloomberg
2 The five stocks are: Amazon, Alphabet, Apple, Facebook, Microsoft. (They are worth more than all German or Japanese or British shares put together)
3 Cyclical sectors such as chemicals, automotive, mechanical engineering and travel.Perspectives 2021
Another obvious differentiation is the search for opportunities may rarely be “too expensive” in
profiteers of the digital transformation, which the next five years.
has been particularly rapid, drastic and disruptive
in recent months. The Microsoft head’s The crisis has shaken things up. Like a child whose
Lego structure has collapsed, we will not be able
statement that the transformation process of the
next two years may have been shortened to two to put many things back together the way they
months remains without contradiction. Many were before. In many ways, a new beginning is
industrialised countries would now have to go to needed. For this new beginning, some of the
great lengths to keep up with this speed – for bridges behind us do not even need to be
example in licensing procedures – and not demolished, because they no longer exist. This is
a global experience and could give us the
weaken their companies in terms of competition.
The traditional (manufacturing) industry is no opportunity to make the shift to a sustainable
longer necessarily the centre of economic economy economy, both environmentally and
prosperity. Instead, this sector is increasingly sociologically. Global challenges need globally
being squeezed by companies from completely coordinated responses that also include the
outside the industry with innovative concepts poorest countries. This is particularly true with
regard to the mitigation of global warming.
and no historical dead weight. The most recent
example comes from Apple, which has previously Epidemics and pandemics can be fought with
been known as a manufacturer of smartphones, lockdowns and medicines, and the capital
markets can overlook them because they are
and their idea to enter into the production of
electric cars. In addition, we can see that predictable. However, the situation is likely to be
globalisation is being “rewound” and the focus in quite different as soon as tipping points are
manufacturing chains is now being directed triggered in the global climate. You do not want
more towards locality and sustainability. to overlook that if you are being honest. The post
However, this is by no means accompanied by Covid-19 world will therefore probably become
“deceleration” as we can see an increase in the more digital and local, but almost inevitably more
sustainable. It is both challenging and rewarding
speed of processes and new developments. Last
but not least, faster internet connections (5G) to identify the companies that will successfully
are promoting this development. Companies drive this development over the next ten years.
that drive these trends or take advantage of their Looking ahead to the next ten
China leads the way in innovation years, it is also worth taking a look
at Asia and China in particular.
ANNUAL OUTPUT OF INTERNATIONAL PATENTS
Assuming the growth rates to
date, the People’s Republic of
China could overtake the United
States in terms of its gross
national product around the end
of this decade. Even today, more
patents are being filed there than
anywhere else. Telecommuni-
cations technology, robotics and
artificial intelligence are at the top
Germany Korea France
of the patent lists, putting China
China U.S. Japan
on a par with the USA, Japan and
Source: World Intellectual Property Organization
Germany. China is also a pioneer
in terms of electromobility; thePerspectives 2021
share of electric cars amongst new registrations is Legal notice:
stable at more than 5 %. In relation to this, only
This publication was prepared by CONCEPT
Norway sells more e-cars, incidentally with a Vermögensmanagement GmbH & Co. KG (CONCEPT). It is for
Chinese brand in third place. The Chinese stock information purposes only and may not be reprinted or made
market, on the other hand, is currently still “only” publicly available without CONCEPT’s express consent.
half the size of the American stock market and, The information contained in this publication is based on
sources that CONCEPT believes to be reliable but has not
moreover, in some segments is inaccessible to subjected to any neutral checks. The information is publicly
foreigners. That is why the baton of “global capital available. CONCEPT assumes no guarantee and no liability for
market leader” will not be handed over any time the correctness or completeness of the information. The
soon. opinions expressed in this publication are those of the author
and are subject to change. Such changes of mind do not have
to be published.
OPTIMISTIC IN THE MEDIUM TERM
The information contained in this publication is based on
Although it is difficult to determine the direction of historical data and CONCEPT’s assessments of future market
the capital markets in 2021, as much will depend developments. These market assessments have been
on the effective fight against Covid-19, we remain obtained on the basis of analyses prepared with due diligence
and care. Nevertheless, CONCEPT cannot assume any
optimistic about the medium-term future, guarantee for their occurrence. The value of an investment
although we are also aware of the risks. Entering based on this may fall or rise, and the amount invested may
into these risks is unavoidable if you want to not be recovered.
achieve returns. Our world is still becoming more
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We wish you and your families a predictable new
year and hope you experience joy, success,
contentment and personal happiness. Stay
healthy!
Bielefeld, 6 January 2021
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