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Welcome to Soundbites — weekly insights on market trends and investment strategies, brought to you by Investment Executive, and powered by Canada Life. For today’s soundbite, we asked Scott Berg, a vice-president at T. Rowe Price Group Inc., and portfolio manager for the T. Rowe Price Global Growth Equity Strategy, about the investment prospects for 2021.

We started by asking what sectors he’s taking particular notice of.

Scott Berg (SB): The first one is consumer discretionary, particularly e-commerce-related names like Zalando, a leading apparel e-commerce retailer in Europe; Etsy or Wayfair here in the U.S.; Farfetch on the e-commerce luxury side; Delivery Hero in global food delivery. I think all those names play to just a meaningful step-change acceleration in the penetration of e-commerce globally, which I still think has a long way to run.

The other area where we are particularly overweight going into 2021 is financials, especially non-bank financials like Morgan Stanley and Goldman Sachs or Charles Schwab; some of the alternative asset managers like Brookfield Asset Management and KKR; and insurers like Chubb and Zurich. They actually benefit from lower-interest-rate environments. They benefit from all the central bank activity. And in that sense, I would say we see more opportunity in e-commerce and consumer discretionary and financials, but equally we still have meaningful investments in names in every sector.

What regions of the world is he particularly watching?

SB: Asia-Pacific and Europe are the two places where we have a bit more in the portfolio than not. I would say Asia, to me, really is the place where the gravity of the world is moving toward. It’s where markets are deepening the most, where economies are growing the most. It’s where the most new billionaires are being formed and in that sense [there are] a lot of value-creation opportunities.

And on a different side, I would say Europe. Europe is cheaper. Europe is a place where the negative interest rates, or zero interest rates, are really entrenched. 2020 saw some positive developments in terms of coming together to fund post-Covid recovery efforts in a more striking way than many thought. We got through Brexit. And so I would say Europe is an area where I think it’s out of favour, it’s cheaper, and where currencies are really hard to predict.

What are the biggest fears he’s hearing from investors?

SB: The first is concern that the market has rebounded very quickly, and we may be in a bit of a new bubble. My view over all of on that would be that while valuations are elevated in an absolute sense, we’re in a world of just unparalleled, low interest rates, and printing of money, and I don’t think valuations look at all extreme, relative to alternatives.

I think people fear a step-up in inflation and interest rates. And, finally, we hear a lot of fears about the U.S. and China, [with] higher trade tensions there being a bit of a new normal, and I would tend to agree there.

Will Covid concerns spark continued volatility in the markets?

SB: I think what we saw on the volatility side was a bit of a constant push-pull between two quite different forces, right? On the one hand, there was the notion that Covid had more clearly accelerated the winners in a number of areas and people wanted to own those stocks. And then, on the other side, a sense that the vaccines were close and that we would see a real rebound in some of the beaten-down stocks. And so it was a bit of a kind of yin-yang, push-pull between those two forces and I would expect that to continue.

So how does he sum up his view on how 2021 might play out?

SB: I still think the outlook for global equities over a multi-year period is more likely to be up than down from here. And I think that global equities could very reasonably yield 5-, 6-, 7-per cent in 2021, even from these levels, which, while it is not as good as what they’ve been doing for the last decade, I think still is a really good return.

Opportunities still abound. The world is a big place. It’s constantly evolving. Prices are changing and, you know, I’m still excited that I can find a lot of stocks around the world, in different countries and in different sectors where we can make some good money for clients.

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Well, that’s today’s Soundbite, brought to you by Investment Executive and powered by Canada Life.

Our thanks again to Scott Berg, a vice-president at T. Rowe Price Group Inc., and portfolio manager for the T. Rowe Price Global Growth Equity Strategy.

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