Aviva Investors, the global asset management arm of insurance behemoth Aviva PLC (‘Aviva), expects 2021 to be a year of economic recovery, with GDP reversing much of the unprecedented declines seen in 2020 as a result of the COVID-19 pandemic. The development of a number of effective vaccines changes the end-game of the crisis fundamentally, although there will be some difficult months ahead.

Resurgent waves of virus infection have compelled governments to impose renewed restrictions on activity to contain its spread. These will hurt growth in the fourth quarter and in early 2021, but not to the same extent as seen earlier this year. Later in 2021, uncertainty should fade rapidly, with a potentially potent combination of falling case numbers, re-opening of economies, extensive deployment of vaccines and ongoing policy support.

Sentiment should be boosted further as the contours of the “post-COVID” world become more apparent, allowing companies and households to plan more confidently for the future. The pandemic has demonstrated the resilience and adaptability of people and may have some lasting impacts on behaviour and working practices in the future.

Michael Grady, head of investment strategy and chief economist at Aviva Investors, said: “With a rapid and robust recovery expected in 2021, we prefer to start the year with a moderate overweight to global equities. Prices should be supported by the very strong outlook for corporate earnings growth in 2021.

“With central banks set to keep policy rates low and to maintain QE programmes, there is a limit to how much yields on shorter-maturity government bonds are likely to rise. But we do expect to see some steepening of yield curves as continuing fiscal support, alongside future growth and inflation expectations start to be priced into the market. We prefer to be slightly underweight duration, with a preference of US, UK, Italian and Australian bonds over core Europe.

“The scope for material excess returns from corporate bonds is expected to be more limited in 2021 after the significant tightening of spreads in 2020, though carry and roll down will still provide a stable income. We are modestly overweight the asset class, with a preference for US and Europe over Asia and UK. Within emerging markets, we prefer hard currency debt.

“In currencies, we expect a range of factors, including stronger global growth, reduced geopolitical tensions and wider US budget and trade deficits will lead to a further decline in the US dollar. We are more positive on the euro and yen.”