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ANZ Annual Global Market Outlook: Optimism in 2021

February 2021

Article |  7-minute read

Long-term outlook remains cloudy but 2021 provides rays of optimism for investors.

Amidst lingering Covid-19 related concerns, ANZ’s Chief Investment Office (CIO) offers an optimistic view for equity markets in 2021.

The prospect of a vaccine-led recovery is looking more likely in the second half of the year, as governments commit to massive stimulus aids and central banks promise to keep interest rates low.

The anticipated rebound in economic activity – resumption of manufacturing production, and rising mobility as more people resume travelling – will also be key factors that will push global growth.

And while significant risks remain following calamitous events in 2020, ANZ’s CIO sees some optimism for investors.

2020: A year of extremes

Despite the devastating effects of the pandemic across the globe last year some encouraging signs are starting to emerge.

The start of 2021 will see a number of global and country-specific changes that could usher in a path to economic recovery. Joe Biden has officially started his presidency and is expected to focus on the vaccine roll out and in getting the US economy back on track.

Global central banks including the US Federal Reserve, European Central Bank and the Reserve Bank of Australia (RBA) are still committed to maintaining a supportive monetary policy.

After the massive falls during the onset of the pandemic, equity markets, led by the tech sector, recorded healthy gains to finish 2020 above where they started the year.

And while fundamental factors will still face some headwinds, the continued promise of low-interest rates from central banks and strong earnings growth outlook provides the basis for our optimistic view of equity markets.

Economic outlook

A robust vaccine-led recovery in H2 2021 looks increasingly likely as governments commit to immunise as many people as possible to hasten the return to pre-pandemic economic activity.

As the path to immunisation becomes clearer, the withdrawal of stimulus packages introduced last year, and how such withdrawal is conducted, will become critical for global markets.

A vaccine provides hope of recovery to those sectors most harshly impacted by COVID-19 — including travel, tourism and leisure activities, and offers businesses and consumers more confidence about longer-term decisions.


The Australian economy has rebounded solidly out of the COVID-19 pandemic, due largely to significant monetary and fiscal stimulus and looks set for strong growth in 2021.

We expect GDP to grow by 4.4%, reaching its pre-pandemic level by Q3 2021. Consumer and business confidence are now back above pre-Covid-19 levels.

Whilst there are still challenges in 2021, a combination of restricted spending during the lockdowns and income support has driven household saving rates to record levels.

The focus for fiscal policy is now a strong private sector recovery, including income tax cuts and substantial investment incentives. Housing finance and construction has recovered strongly, driven largely by owner-occupiers and first home-buyers. Strong gains in housing prices are expected this year.

While international borders remained closed, both tourism and services exports are likely to remain weak in H1 2021. The heightened trade tension with China remains a key downside risk for the domestic economy, particularly for exports of education and tourism.


The U.S. continues to grapple with the COVID-19 pandemic. But we see President Joe Biden’s focus on the vaccine roll-out and pro-growth agenda as supportive for economic recovery. We expect US GDP to rebound by 3.0% in 2021.

Foreign relations and trade are expected to benefit from a Biden presidency as his strategy is about building mutually beneficial relationships. But it remains to be seen if this will extend to China. Biden is likely to take a different tack by seeking to reform strategic alliances while building up domestic industries to bolster domestic manufacturing of critical goods to reduce dependence on China.

We anticipate a shift toward greater accommodation from the U.S. Federal Reserve in 2021 to boost the domestic economy.


Japan’s economy grew in Q3 2020 (5% q/q) after declining for the three consecutive quarters prior. But due to increasing Covid-19 cases, the outlook for the country appears somewhat muted in 2021.

In late 2020 the Japanese government released details of a JPY40trn stimulus plan to promote domestic activity to counter the impact of the collapse of international tourism.

Private consumption is expected to stay at a moderate pace although economic activity is likely to be bumpy until the end of H1 2021. The government aims to vaccinate all citizens by the end of June 2021 and should the Olympics go ahead this year, it should provide additional stimulus for growth in the H2 2021.

We expect Japan’s economy to recover by 2% in 2021 following an estimated 5.5% contraction in 2020.


The cyclical backdrop to the Eurozone should improve as 2021 progresses, lockdowns are eased, citizens vaccinated and sectors inhibited by the virus are allowed to resume normalised activity.

However, European GDP is likely to remain below potential which may cause upward pressure on unemployment and downward pressure on prices, particularly in H1 2021.

We forecast GDP to rise by 5.0% in 2021, with the economy returning to pre-pandemic levels by early 2022.


China has coped with the COVID-19 pandemic remarkably well and in 2021, the economy is likely to have fully recovered. Our conservative assumption is that China’s GDP will expand at an average quarterly rate of 1.3% from Q2 to Q4 2021, which would take its GDP up 8.8% for full-year 2021.

China is expected to continue opening up and import necessities but will focus on a broader range of internal economic and social objectives, focused on increasing growth in the region.

Investment themes

What to watch in 2021

The pandemic forced the world to change at a rapid pace. This year, we see some changes and themes to accelerate and to impact market outcomes accordingly.

Sustainability – a megatrend for investment

The Sustainability has become a pervading megatrend that impacted investment markets in 2020. We expect it to become more dominant in 2021 and beyond.

Climate change action is another significant part of sustainability and in 2020 we saw continued commitments by governments to reach net-zero emissions.

At ANZ Private Banking & Advice we are responding to the sustainability megatrend in a number of ways, and we’re demanding more of our underlying fund managers.

We will put even greater emphasis on sustainable investing; not just because it’s the right thing to do, but because it also makes sound investment sense.

TINA – There is no alternative (to equities)

Return expectations for bonds and equities have fallen to historic lows.

We believe that higher strategic allocations to equities and overweights vs. government bonds and cash may be necessary to sustain a certain level of portfolio return while not running excessive risk. Professional strategic asset allocation is critical to ensure this is done appropriately, avoiding concentration risks and diversifying intelligently by expanding the traditional opportunity set.

China trade

Relations between Australia and its largest trading partner, China, came to a head in late 2020.

China’s recent trade restrictions on Australian exports including wine, coal, timber, copper, barley and lobster came after the Australian government blocked telecommunications giant Huawei from the 5G network. Australia’s criticism of China's actions in Hong Kong and its push for an independent inquiry into the origination of COVID-19 also added to the tension.

The souring relations are a significant headwind for the Australian economy.

Whilst it is difficult to forecast the impact on the domestic economy and share market in 2021, we believe the likelihood of material risks to the local share market remains relatively low and isolated to a handful of specific stocks within the ASX 300.

Investment strategy 

TINA supports a positive outlook for 2021.

Our optimistic outlook for 2021 is based on a number of factors including:

  • Governments are focussed on supporting economies with further fiscal stimulus.
  • A broader distribution of COVID-19 vaccine looks more probable in H2.
  • Rates are anchored at all-time lows and are expected to remain there for the foreseeable future
  • TINA supports a positive outlook

However, this is not to suggest it will be a linear pathway for global markets in 2021. We expect it to be a volatile ride for investors, but we are confident that equities will continue to provide a better alternative than cash and fixed income this year.

With markets currently priced for perfection, we don’t expect investors to receive returns in the high-teens and above - similar to what was experienced in 2019 and 2020.

For this year, we believe equity markets are likely to produce returns in the high single-digits.

Read ANZ chief investment office’s full 2021 Annual Global Market Outlook (PDF 3.8MB).

If you’re contemplating taking out income protection insurance, applying for a business loan or building a share portfolio it can be useful to get expert advice before making any commitments. An ANZ Financial Adviser will be happy to help you come up with a plan to reach your life goals.

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