Downside risks to economic activity have ‘diminished’ since the summer, according to Aviva Investors, which means the economic recovery should continue into 2021.
This was the result of targeted restrictions on activity which would prevent the need for any full national lockdowns if there was a rise in COVID-19 cases and the likelihood of a vaccine being formulated in early 2021, the firm’s latest ‘House View’ investment report found.
Any economic revival would depend on continuing policy support in the form of monetary policy, generous fiscal support and government stimulus for businesses and workers. This would have the potential to bring about “material changes” for economies and global financial markets as loose monetary policy was geared towards achieving higher inflation.
Michael Grady, head of investment strategy and chief economist at Aviva Investors, said: “The combination of brighter economic prospects, receding risks from COVID-19 and continued policy support, has led us to take a more positive view towards risk assets. We prefer to express more risk in credit markets, with an overweight view in global high yield and US investment grade credit. Our previously negative view on global equities is closer to neutral overall.
“Relative valuations and the form of the cyclical recovery favour Europe and emerging markets over the US and Japan.
“The decline in sovereign bond yields globally makes them less attractive, especially as an effective risk-reducing asset in our portfolios. While we have a neutral view overall, we balance overweights in the US, Italy and Australia with underweights in core Europe.”
