The virus and the rollout of the vaccine still colour all economic views and put huge uncertainty around them. However, we think the most likely scenario is that global economic growth will be well above its average rate for the next three years. There are three main reasons behind this positive outlook.

The first is the roll-out of vaccines, which should allow restrictions on activity to be progressively lifted, especially in the second half of the year. However, the roll-out is going better in some countries than others, and this will be of benefit to some companies quicker than others.

Second, there is a very large amount of spare capacity in the global economy.  So as those people that have been made unemployed find new work, and companies get back up to speed, it could take a while before wages and prices increase.

Third, central banks will be happy to keep interest rates low, while governments will be wary about raising taxes too quickly in case, they derail the economic recovery.

The economic growth picture noted above is a positive one. However, we should again note its dependence on a vaccine rollout. As we have already seen in both the developed and developing world, this rollout is very variable. Its progress will be watched carefully by investors.

One of the other concerns occupying investors now is the prospect of rising prices in the short term. However, we are not concerned by this and think any rise in prices will prove temporary, due to the spare capacity in the economy. Inflation should drop back below most central banks’ targets by the end of this year.

Against this backdrop, we see a continued supportive environment for share prices. The plentiful economic and profits growth already noted, suggests that companies whose profits are closely linked to the fortunes of the economy will fare well.

For those of us trying to build portfolios, this is a complex situation and there are many factors to consider. Our House View portfolio maintains a bias to quality shares and bonds that pay a reliable yield.

Within equities we favour a mix of global developed market equities. In bond markets, we continue to favour high yield bonds, but would have a slight increased preference for developed market bonds over emerging government debt. The former offer better value after recent weakness.

We will continue to take profits in investment grade corporate bonds. While issuers continue to trade satisfactorily and defaults on bond payments are low, further price rises seem unlikely.

Putting all this together, the importance of careful diversification comes to the fore, and building a portfolio that can survive the bumps in the road we can see, but also, more importantly, those that we will not.

Key Takeaways

• The most likely scenario is that global economic growth will be well above its average rate for the next three years.
• We will continue to take profits in investment grade corporate bonds.
• The virus and the rollout of the vaccine still colour all economic views.
• For those of us trying to build portfolios, this is a complex situation and there are many factors to consider.

Richard Dunbar of Aberdeen says that companies whose profits are closely linked to the fortunes of the economy will fare well.