hedge funds in 2021? How do you anticipate central bank action influencing

How do you anticipate central bank action influencing global markets in 2021?

RAZVAN REMSING Director of Investment Solutions, Aspect Capital There is an argument to be made that central banks have been the major protagonists of the equity market recovery so far in 2020 and they will find it very hard to extricate themselves from having to continue to provide more support. Equity markets may well continue their euphoric rally for some time but once the pandemic recedes, investors may well find that the global economy is still marred by problems that both predate and those that have been exacerbated by the crisis.

One of the likely side effects of this extraordinary ultra-easy monetary policy could be the return of inflation, the question being when not if. Additionally, bond markets may no longer provide the same level of income, with yields so depressed, nor risk mitigation in the face of equity crisis. So, one of the more pertinent questions for 2021 and beyond is what investment strategies could provide a surrogate role for bonds in a traditional portfolio.

One potential scenario could be stagflation – weak growth coupled with rising inflation. There we would expect directional and relative value opportunities across currencies and commodities to increase and we would expect more dynamic trading strategies to be able to navigate the likely turbulent markets in the medium term.

Alternatively, equity markets could continue to recover but not without setbacks as the pandemic and its effects will still be around for a while. Against that environment, we are continuing to research and expand the use of alternative data sets to more readily pick up on changes in sentiment or market regimes – an area of research that has already served us well during 2020.