I mostly invest in UK shares. But many times, I’ve gazed across the pond in envy at a US market that always seems to be tearing upwards!
However, one analyst thinks that’s all about to change. Bob Parker of Quilvest Wealth Management reckons European and world shares will outperform the US market in 2021. And London-listed shares will be right up there among the top performers.
UK shares look ripe to benefit
Parker’s theory hinges on the idea that investors will focus on markets and sectors likely to recover rapidly as the coronavirus pandemic begins to recede. And I reckon the UK is ripe to benefit from a trend like that.
Indeed, the London market is packed with shares in cyclical sectors currently being suppressed by Covid-19. I’m thinking of the hospitality sector, travel, oil, retail, banking, housebuilding and others. Indeed, the FTSE 100 index, for example, has some big cyclical players, such as Lloyds Banking Group, BP, Anglo American and Burberry.
To me, Parker’s prediction is an attractive theory. He said investors will likely head for shares “where growth prospects are the most durable and where valuations are less stretched.” And, if he’s right, it makes sense of all those articles we’ve been reading for the last few months imploring us to buy cheap shares. Indeed, Parker expects European stocks to outperform the US, with markets in the UK, Spain and Italy leading the charge higher.
I reckon we can already see the trend developing. Parker explained that the encouraging news regarding vaccines we’ve had recently caused investors to go back into “what was a very unloved, under-owned market.“
And there’s strong evidence of that in the big snap-back rallies we’ve seen in November from stocks such as housebuilder Taylor Wimpey, banking company Barclays and food-on-the-go provider Greggs.
The great rotation
Adding further context to his ideas, Parker said that up until this November, much of the movement in markets this year had been driven by US stocks outperforming other markets. And he observed that the tech sector had risen the most.
But tech slowed down in November, and he reckons that’s because of investors taking profits and exiting what had become a “very crowded trade in tech both in China and in the States.”
So where is the money going? I think one possible answer is there’s been what looks like a great rotation from tech and leading growth stocks into shares showing better value. And that happened fast in November as those Covid-19 vaccine announcements hit the newswires.
Indeed, it seems to me investors are positioning themselves for a world recovering from the pandemic. And that makes a great deal of sense because the stock market looks ahead. I reckon it’s best to try to imagine where the economy and trading for companies will be six to nine months ahead and invest for that.
So, for me, nothing changes. I’ll keep searching for stocks representing quality businesses selling at attractive prices. And I’ll search in all sectors because a rising tide could lift most boats.
