Bifurcations in recovery patterns will mean asset managers will need all their expertise to avoid sectors or regions that do not capture secular trends created or accelerated by the Covid crisis.
Here Denis Prouteau offers his thoughts on the key factors driving the investment environment in 2021.
Covid-19: 2021 Will See the World Return to ‘Normal’
If a return to normality means the return to pre-Covid fixed income government bond yields and credit spreads, this would appear unlikely. US fixed income markets seem this year to have joined Europe and Japan in the low-yield club, with none of these markets facing an obvious escape route.
If a return to normality means revived macro activity, the answer remains ‘no’. We have probably shifted - at least for a while - to an environment where sectors and perhaps whole countries will exhibit very diverse performances in 2021.
The mainstreaming of ESG
The Mainstreaming ESG is Already Behind Us.
The speed at which regions that were less advanced in this area (APAC and Japan in particular) have caught up with the most ‘virtuous’ European investors has been amazing.
Going forward, we face several issues in the ESG space:
- Maintaining a proper balance between the ESG pipeline and ever-growing demand. Otherwise ESG criteria may push investors to turn blind eyes to risk/return profiles
- The need for commonly understood and used terminology and labelling for transactions and investment vehicles
- Harnessing ESG tailwinds to develop new opportunities in emerging markets, blended finance, debt impact investing, debt thematic products, and more.
The post-Covid macro environment is defined by the sentiment that low yields and spreads will continue forever. With the seemingly unstoppable growth of long-dated liabilities in pension, endowment funds, sovereign wealth funds and life insurance companies, investors are bound to seek products providing stable and positive returns (with acceptable risks) like real assets or private debt.
Bifurcations in recovery patterns will mean asset managers will need all their expertise to avoid sectors or regions that do not capture secular trends created or accelerated by the Covid crisis or meet the appropriate risk/return criteria.