The base macroeconomic scenario for 2021 expects the recovery that began in the third quarter, buttressed by continued monetary and tax incentives and gradual vaccination.
Investors are advised to invest according to their risk profiles, with portfolios balanced between new business models (such as Santander Future Wealth line) and companies hit hard by the pandemic but expected to benefit from cyclical recovery.
Portfolios with ESG (Environmental, Social and Corporate Governance) criteria should continue to yield higher risk-adjusted returns.
Madrid, 17 December 2020 – PRESS RELEASE
Santander Wealth Management & Insurance (WM&I), which groups together private banking, asset management and insurance, estimates that the recovery of global economies, under way since the third quarter, will continue in 2021. "Every crisis brings risks and rewards, and achieving returns above inflation in this environment of recovery and disruption requires a dynamic strategy. Interest rates are extremely low and will remain so for a long time, increasing the need to consider potential riskier investments with positive yields," says Global Head of Santander Wealth Management & Insurance Víctor Matarranz in a letter included in the 2021 market outlook report titled Recovery and Disruption. GDP is expected to grow 4.2% in the US and 4.6% in the eurozone, while China could grow by 8.4%.
According to Santander WM&I, economic recovery will require continued monetary and tax incentives, social distancing and, above all, mass vaccination in order to become reality. A major risk it points out is that, once the pandemic no longer poses a threat and business activity stabilizes, stimulus programmes will lead to overheating followed by high inflation in the future. “We believe the economy is entering a reflationary phase but we assign a low probability of having a runaway inflation scenario. […] In short, our main scenario contemplates a moderate and not very worrisome increase in prices," says the report.
Santander WM&I advises investors to look into alternative solutions with innovative asset management, in light of waning potential returns on traditional low-risk assets and unattractive interest rates. Accordingly, it also recommends positions in equities on both sides of the profit spectrum, with stocks expected to gain from future trends, but moving from industries that have grown considerably in 2020 towards less explored industries and businesses. It also suggests gradually increasing investments in industries hit hard by the pandemic in order to gain the most from their recovery and stabilization. In this shift, stock markets in Europe and Latin America could see growth after lagging in the early recovery stages on the back of their highly cyclical nature.
Santander Private Banking released a new advisory service this year to help customers discover areas seeing greater disruption and more opportunities to monetize innovation. This service, called Future Wealth, features more promising areas of investment and consists of three large innovation brackets: Future Society, Future Tech and Future Planet.
Santander WM&I asserts that factoring environmental, social and corporate governance (ESG) criteria into portfolios will also be key for next year. “Sustainable investing (ESG) is not a temporary fad. For more and more investors, these areas are just as important as financial variables when it comes to deciding whether or not to invest their hard-earned money into a company. Higher risk-adjusted returns can also be achieved as ESG factors can influence value, reputation, and regulatory governance of companies and industries”, the report concludes.