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H2 2021 investment outlook

Recovery, risk and the ‘sustainable revolution’

19 July 2021 |
This year's market environment has been challenging to navigate. A number of themes have captured the attention of our investment floor, and our managers have been considering how these are likely to evolve going forward.

In this special episode of Amplified, our Head of Investments, Eoin Murray, discusses the economic outlook for the second half of 2021. He is joined by guests Silvia Dall’Angelo, Senior Economist, Louise Dudley, Global Equities Portfolio Manager, and Andrew Jackson, Head of Fixed Income.

Compared to our last forecast at the end of 2020, there are plenty of reasons to be optimistic. The global economy looks set to enjoy strong growth – at least in the short-term –thanks to the vaccine rollout across most developed economies and a new round of fiscal measures.

But as Dall’Angelo warns, this recovery is peppered with ‘elements of fragility’.

‘A notable divergence has opened up between emerging markets and advanced economies, with the former lagging… this is a problem for all countries, really, because variants of the virus tend to emerge in places, in countries, where the vaccine rollout is not up to speed.’

While highlighting the strength of global equities markets and positive earnings momentum, Dudley also has her concerns, namely around inflation.

‘Everyone seems to be talking about it and the question of whether it will stick around, or whether it’s just temporary.’

Jackson, too, mentions inflation risk, alongside volatility and stretched valuations. The silver-lining, at least for credit investors, is that hedging currently presents an ‘incredibly cheap’ means of insurance.

There is no question that the world is facing a period of fundamental change and this, for Murray, presents an opportunity to, ‘build forwards better’.

‘If I think about the first industrial revolution being about the application of steam to industrial processes –  and then [the] second industrial revolution, in which electricity replaced steam as that source of energy – this third industrial revolution… is really a sustainable one. It’s going to be around changing… our source of energy from fossil fuels to renewables’.

Encouragingly, the sustainable revolution is a topic that appears to have risen up the agenda for clients, with many looking for guidance from our stewardship and engagement arm, EOS at Federated Hermes. As Jackson notes:

‘[Clients] don’t just want to see where a company is now; they want to understand more and more what the future will look like for some of these corporates…

They want to work with us on transforming our industry, the asset management industry, the nature of capital markets… and the energy and professionalism that they’re bringing to these problems right now is really engaging and really, really positive.

There is this huge shift from where we were a decade ago. This is probably the number one item that [clients] want to discuss’.

For more on what the last six months have taught us – and what we will be carrying forward into the second half of the year – tune into Amplified.

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