While the pandemic has clearly impacted the global economy, the UK has suffered more than most. The knock-on effects of the virus and the measures put in place have crippled the economy, with GDP falling more than any other G7 nation as output plummeted and businesses focused on survival rather than growth.
The UK’s poor response to the pandemic has further accelerated our push away from UK-focused investments as the perfect storm of COVID-19 and Brexit continues to provide significant uncertainty going forward. Despite a general bearish stance on the UK, we have continued to select a small number of direct equity investments that have, and continue to, perform strongly, with companies such as Ocado [LSE:OCDO] and Games Workshop [LSE:GAW] continuing to exploit pockets of growth both domestically and internationally, propelling the share prices to all-time highs.
We envisage that both our direct and indirect UK exposure will continue to be met with headwinds into 2021. While we would expect those stocks within cyclical value sectors to benefit from a revitalised economy next year as vaccinations ramp up worldwide, many such investments face significant structural headwinds and even decline in their respective sectors, providing little value over the long-term.
Changes and challenges for US markets
Looking beyond the UK, Redmayne Bentley believes there remains a plethora of changes and challenges for the US, including its poor handling of the coronavirus pandemic, a messy US election and a significant reduction in economic activity and output.
Despite the historic run of US equities, we would still expect many US-based investments to outperform their European counterparts in 2021. We particularly like the relentless growth, defensive nature and consistent innovation that many large US corporates possess. Names such as Microsoft [NDQ:MSFT] and Adobe [NDQ:ADBE] encapsulate the ‘quality growth’ style and offer investors exposure to growth on a global scale.
Looking towards Europe, Redmayne Bentley’s view is that the EU faces the same Brexit deal challenge as the UK and, while it is clearly likely to have greater impact on the UK economy, the continued reduction in sentiment towards Europe due to sluggish growth will not be aided by a no-deal Brexit.
While a Brexit deal and improved relations between the US and Europe could provide a small tailwind to European equities in the new year, the fundamental problems that the region and many of its businesses face, from sluggish growth to a lack of innovation, lead us to underweight our exposure to Europe, instead opting to focus on a small number of quality growth equities and collectives that are capable of producing consistent growth into the long term.
Asia: the rising star of global investments
Asia has undoubtedly been the rising star of global investments this year. Continued macroeconomic improvements despite headwinds have allowed corporate fundamentals and governance to continually improve without affecting growth. Joe Biden’s likely ‘softer touch’ to trade negotiations should provide a tailwind to, in particular, Chinese investments.
While we believe that an improving global economy, as well as fewer COVID-19 restrictions will provide a tailwind to investments globally, we believe that the most exciting and fruitful opportunities will come from within Asia. Asian firms have typically focused their efforts domestically or within the region, however, this coming year could potentially see large Asian tech companies start to foray into international markets and challenge the incumbent market leaders.
As such we remain overweight towards Asia and in particular China, with the country’s handling of the pandemic helping its economy and its businesses to continue operations with minimal impediments. While we do like individual names within the region such as Alibaba [NYSE:BABA] and Tencent [HK:0700], at present we feel more comfortable investing in collective investments with experienced managers who possess strong track records in the region, in order to help navigate the complexities and provide a more ‘boots on the ground’ approach to investing.