Global Asset Allocation 2021 Outlook

Economic gains have been driven by the factory sector that has demonstrated a growing resilience to the pandemic, thanks to the synchronous recovery in global demand and trade flows. Factory strength has counteracted a more tepid revival in the services sector that’s been plagued by the latest spike in Covid cases and the flood of new restrictions that have been aimed at the high-touch services space.

Regionally speaking, solid recoveries across the U.S. and China have overshadowed some vulnerabilities in Europe. The Chinese economy continues to be a key pillar of strength, cementing the nation’s status as the only major economy set to grow in 2020. Economic gains are all-encompassing across both the factory and consumer space, while forward-looking business surveys imply that strength is likely to extend into 2021. This vigorous landscape in China remains an important tailwind for the global trajectory in the coming year. Meanwhile, the U.S. economy has held firm even in the face of soaring infections, with relative strength reflecting the lagged impacts of massive fiscal stimulus. The consumer remains a dominant driving force, with job gains and elevated savings cushioning the blow from fading fiscal stimulus – while factory and housing activity are also bright spots. In contrast, the European economy hit a soft patch in the fourth quarter after governments reinstated more stringent lockdowns in response to the second, record-breaking wave of infections across Europe and the U.K. The deterioration has been concentrated in services that have been hit disproportionately by new curbs that have been targeted towards leisure, restaurants, and hospitality. Indeed, the European economy is more closely tied to services and tourism versus the United States.

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