European markets are set to outperform in 2021, writes Guy Thornewill, Pie’s Head of Research UK and Europe and Senior Investment Analyst.
This year has been one of the most volatile periods for share markets in recent history. The Covid-19 pandemic has caused unprecedented changes in economies, companies, and the lives of ordinary people. Europe has been especially affected, given its dense cities and ageing population, but the recent positive news on vaccines means the future is about to get much brighter – something that share markets are only beginning to reflect.
Brexit is close
Brexit (the withdrawal of the UK from the European Union) is finally getting close to a resolution. Deadlines have been constantly extended to enable a trade deal between the EU and the UK to be agreed, but the end-game is nigh. The remaining sticking points are a level playing field over future state aid and fisheries. It is bizarre that the fishing sector, which accounts for just 0.02% of the UK’s annual gross value-added production, should be so important, but this is where we are. The UK wants control of its fishing waters, and the EU wants to retain its current quotas.
Uncertainty nearly over
An agreement may or may not arrive before 31 December, but the point is that the uncertainty is nearly over. Compared to the impact of the Covid-19 pandemic, a hard Brexit (a sharp break in relations) would be much less of a shock for UK and European markets. For example, UK public sector borrowing has risen to 19% of GDP in 2020 from just 2.5% in 2019. A hard Brexit would only reduce the UK’s trend growth to 1.5% from 1.7% in a trade deal scenario.
Looking ahead to 2021 there are many reasons to be optimistic. Brexit uncertainty will be over, a Covid-19 vaccine is expected to be aggressively deployed, and the current low interest rates on government debt mean that all the pandemic support schemes, for both companies and employees, can be maintained as needed. Indeed, the UK is the first country to approve a vaccine and it’s being rolled out. The rest of Europe will be close behind.
This bodes well for UK and European share markets, which have suffered more than many other major markets in 2020 and therefore could recover the fastest in 2021. We expect Pie’s Growth UK & Europe Fund to benefit from this, especially as we have recently added several pandemic recovery plays (companies we expect to benefit now there’s a vaccine) to supplement the fund’s core holdings in high-quality growth companies.View Growth UK & Europe Fund
Benefits of Pie’s Growth UK & Europe Fund:
- The Fund has returned 48.59% since inception in November 2016 (after fees and before tax), as at 30 November 2020
- Grow your capital by investing in a small number of growth companies
- Exposure to listed UK and European smaller companies, whose potential we do not consider to be fully realised by the market.
- Access to your money in 10 working days
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To download our product disclosure statements, go to www.piefunds.co.nz. Past performance is not an indicator for future returns. This information is general in nature only. You may wish to discuss with an expert before relying on it.