KUALA LUMPUR: The economic response to Covid-19 will continue to be the biggest uncertainty stalking global equity markets in 2021.
Franklin Templeton executive vice president, head of equities Stephen Dover said the uncertainty is likely to continue weighing on global economic activity and to keep pressure on policymakers to produce programs that support economic activity until an effective vaccine is widely available.
"The positive news on vaccines gives us comfort that Covid-19 will be contained but the timeline remains uncertain.
"For global equity investors, however, we see promise, not only in the sectors benefiting from the profound digital transformation the global pandemic has pushed into overdrive, but also in several specific regional markets, like Japan and China, that may be beneficiaries of distinctive trends worth watching in the coming year," said Dover.
He said until the spread of Covid-19 is reduced, the outlook for the world economy is likely to remain volatile.
"Certainly, we have been encouraged by the snapback in economic activity from the disruption the lockdowns caused in the spring of 2020, but the recovery may be stalling, and global gross domestic product remains well below where it was before the pandemic started.
"Many equity investors are trying to look past the current economic and earnings disruptions toward longer-term earnings growth," he said.
Meanwhile, Dover said in a low growth, low interest-rate world, Franklin Templeton believes investors will continue to look to global equity markets for attractive investment opportunities relative to other asset classes.
And the trends that have driven equity markets higher since the start of the pandemic, such as digital transformation and innovation in the technology, health care and consumer sectors, are set to continue, he said.
"Regionally, we continue to see opportunities in China and other emerging markets, mostly in Asia. We expect they should rebound much more strongly from the economic weakness of 2020 than some of their developed market counterparts.
"Asian economies in general have been well prepared for both the pandemic and the accelerated shift toward a more digital economy, in our view," he said.
According to International Monetary Fund (IMF) forecasts that emerging and developing economies overall are likely to grow at 6.0 per cent in 2021 after a 3.3 per cent contraction in 2020.
Emerging Asia is likely to pace the advance, according to the IMF, with the region growing 8.0 per cent in 2021 and China posting an even faster 8.2 per cent growth rate next year.
"Regardless of how the coronavirus progresses and what the broader economic environment over the coming year looks like, we think global investors should keenly focus on individual company fundamentals when making long-term investment decisions," said Dover.