As we enter the second half of 2021, all the ingredients that have been fueling the global stock market rebound since March 2020 remain in place. And we believe the equity party that investors have been enjoying will continue this summer. New confirmed cases of Covid-19 have come down significantly from the peaks registered in April and vaccination campaigns have been progressing at an accelerated pace – in developed markets as well as the major emerging markets.
With economies in gradual reopening mode, macroeconomic indicators have become less buoyant, but they remain clearly positive, and corporate earnings prospects are promising. So far this year, earnings reports have been good across the board. According to consensus estimates, the world is looking to achieve a staggering 39% earnings per share growth in 2021. This would come after a rather limited 11% decline of global earnings in 2020, mainly caused by weak European bank earnings.
What’s more, fiscal and monetary support is likely to remain ample for the time being. While global money supply growth has been slowing, it is still abundant and central banks have done their best to convince investors they will not take the proverbial ‘punch bowl’ away from the current easy money party anytime soon. The Fed’s recent grueling backtracking on a potential hawkish turn, after the market jitters seen in June, is a good illustration.
In this context, both our developed and emerging markets equites teams have kept a positive stance on their respective stock markets for this quarter and have not made any changes to the five underlying factors of our analysis framework. For now, we believe that the current ‘Goldilocks’ environment – with inflation and economic growth neither too high nor too low – will continue for some time.
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