2021 Midyear Outlook

The economic restart is real, and it is broadening out globally. But what comes next?

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Our first theme for the rest of 2021 is what we call the new nominal, whereby we expect higher inflation in the medium term as a result of more muted monetary policy response to inflation than in the past. We're turning even more positive on European equities and upgrading Japanese equities to neutral. We are moderating our view on US equities to neutral.

Our second theme is China stands out. Chinese assets play a key role in an increasingly bifurcated US-China world, and they need to be considered as a standalone asset allocation. The quality revolution in China, putting the quality of growth over the quantity of growth, makes us tactically neutral on Chinese equities as strategically overweight.

Our third theme is the net zero journey. Our journey to net zero in terms of carbon emissions has a clear starting point and a destination. But there's no roadmap, and we see many zigzags along the way. While overweight, the tech sector is better positioned for the green transition.

The bottom line is, as the economic restart broadens out, we remain pro risk even though the path for risky assets to push higher is getting narrower.

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