Goldman Sachs: Expect a bull run in 2021

Kumutha Ramanathan
·Contributor
·2-min read
Goldman Sachs is forecasting 34% earnings per share growth in 2021 for global equity markets. Photo: Muhammed Selim Korkutata/Anadolu Agency
Goldman Sachs is forecasting 34% earnings per share growth in 2021 for global equity markets. Photo: Muhammed Selim Korkutata/Anadolu Agency

Banking titan Goldman Sachs said it’s “confident” about global economic recovery in 2021, expecting the global real GDP growth to hit 6%, according to a research note from Goldman released on Thursday.

The news comes as governments around the world are coming to terms with sluggish growth in the face of COVID-19 restrictions. In the UK growth hit 15.5% in Q3 rather than the 15.8% analysts had expected, dragging FTSE down on Thursday, reversing gains made earlier in the week on news of Pfizer (PFE) vaccine breakthrough.

The 2020 bear market should be regarded as “event-driven” said Goldman, and the “collapse and recovery have been much quicker than in ‘cyclical’ (typically driven by interest rates) or ‘structural’ (preceded by asset bubbles and imbalances) bear markets.”

Global equity markets should post strong 34% earnings per share growth in 2021 following a sharp 20% decline in 2020, according to the bank.

With the US election over, Goldman added that growth will be increasingly dependent on a COVID-19 vaccine.

While news of Pfizer’s vaccine trial and others are promising, it could still be months before their benefits are priced into markets.

READ MORE: Markets pare gains as coronavirus vaccine euphoria wears off

“From a GDP perspective, the strong rebound that we expect to see next year will mean that the global economy gets back to the GDP levels of end-2019 by around mid-2021.”

China is already back to its pre-COVID peak, while Europe is not likely to get there until 2022 and Japan until 2023, said the bank.

Further reinforcing this growth story is the backdrop of historically low bond yields that should also be supportive for equity markets, said Goldman, especially if accompanied by stronger growth.

About eurozone, Goldman said the highest probability being reflected in the market is for inflation to continue to undershoot the European Central Bank’s target.

The ECB’s recent actions have been in line with this sentiment. At its annual central banking conference on Wednesday, president Christine Lagarde said that inflation in the eurozone was likely to remain negative for longer than anticipated as rising COVID-19 cases forced governments to enforce new restrictions.

She also said the bank would focus on emergency bond purchases and cheap loans for banks when it build its new stimulus package for the coronavirus-hit eurozone economy.

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