Many of our favorite themes for equity investing remain technological, suggests Monty Guild, a growth and value-oriented money manager and editor of Guild's Global Market Commentary.
These favored technology areas include business process digitization, cloud computing, artificial intelligence, big data and the internet of things, cybersecurity, electronic payments, financial technology and services, electronic entertainment, and telepresence.
The familiar suspects here include Facebook (FB), Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT), as well as others which experienced strong growth in 2020. We do not believe that growth is over. We also like industries that support physical technology infrastructure buildout, including 5G and AI processing.
We also like many industries within the healthcare sector, including specialty pharma, biotechnology, medical technology, and companies rationalizing point-of-care healthcare delivery, such as CVS Health (CVS).
Many of these companies will find ways to prosper in the immediate political environment, and we do not see reason to believe that this environment will be catastrophic for them in the near future. Demographic tailwinds will continue to benefit these industries.
Other themes that interest us in 2021 include some recovering sectors and industries that will experience powerful bounce-backs as the “pandemic pause” potentially yields to a new cyclical upswing.
Here we are thinking of physical infrastructure, climate-change and carbon mitigation, transportation, and travel, leisure, and (non-electronic) entertainment in particular.
We like green themes, including batteries and new battery technologies, decarbonization, EVs, advanced biopolymers and biodegradable plastics, and new recycling technologies.
At the nexus of tech and electrification sit rare earths, which will be significant especially as conflict with China continues and could offer opportunities as non-Chinese sources come back online.
Some pandemic-recovery themes will be overshadowed by the acceleration given to tech-related themes by the pandemic. Some of these tech themes will moderate, but they have likely inflected to a more rapid trajectory of adoption as a result of the events of the past nine months.
The second-order effects of the inflection in business digitization may provide the most interesting themes for 2021. These will include quantum computing and enterprise artificial intelligence, as applied especially in logistics, manufacturing, materials production, and drug discovery.
Though we are bullish on many American companies, we also see excellent opportunities beyond the U.S. stock market in 2021 and possibly 2022.
Japan is a particular focus of interest, as it typically benefits from a global industrial inflection, and due to its preeminence in precision manufacturing, autos, major machinery, heavy equipment, and industrial and consumer electronics, and it will benefit especially from continued global trade realignments.
Another positive is a gradual change in the thinking of company managements in Japan — they are becoming more open to change and to the implementation of new strategies and operational flexibility. The Japanese market may be emerging from a generational malaise.
South Korea is also a focus, for similar reasons. Many South Korean companies are poised to benefit from the same forces that would benefit Japan; attractive sectors include heavy and light machinery, software, electronic equipment, and autos.
Another favorite investment destination outside the U.S. is India. The long, slow progress of India towards a more business-friendly domestic regime continues. If Indian governance continues to move in the right direction, India will benefit from the realignment of global supply chains.
India has an educated and entrepreneurial population and is experiencing a rapid inflection in e-commerce and financial technology, to which many domestic Indian financials are exposed due to requirements that fintech companies use the payment rails established by Indian private banks.
While the Indian stock market remains difficult to access for U.S. investors, we advise you to keep a careful eye on U.S.-available exchange-traded products (ETFs) targeting specific sectors of the Indian economy, since more will be created by Indian financial entrepreneurs. Within Indian financials, we recommend avoiding government-run banks; financial services are our areas of focus.
