10 “improbable but possible” outcomes for 2021

Fund manager Invesco’s annual ‘Aristotle List’ details “improbable but possible” outcomes for the year ahead, which include the S&P 500 finishing the year lower than at the end of 2020, the outperformance of value against growth, and a falling price for bitcoin.

Paul Jackson, global head of asset allocation research at Invesco, said: “We believe the biggest returns are earned – or the biggest losses avoided – by successfully taking out-of-consensus positions. 

“A year ago, the mood was mixed – and didn’t anticipate a global pandemic. Hence, our improbable but possible ideas were disparate  – ‘Joe Biden wins the US presidential election’ and ‘the price of carbon in the EU breaks above €30/t’ to take two examples. 

“Despite the pandemic, the mood now seems bullish, so our new list has a bearish tinge,” added Jackson. 

Here is the full list:

1. S&P 500 finishes the year lower than it started
The S&P 500 gained 16% during 2020 (12% in Q4) and, at 3756, it started 2021 higher than our year-end target of 3600. If growth disappoints (due to new lockdowns or collateral damage from 2020, say) or yields rise then stocks could be vulnerable.

2. US 10-year treasury yield goes above 2.0%
What could produce this outcome? We suspect a combination of strong economic growth (supported by the Democrat clean sweep), rising inflation and hints of Fed tapering could do it. We think the latter could easily see the inflation-adjusted 10-year yield move back into positive territory.

3. Value outperforms growth
We have said this before (and been wrong). However, if the global economy expands vigorously during 2021 and bond yields rise, then this could be the year that value outperforms growth. The gap between growth outperforming value in 2020 closed significantly during the final quarter of the year and we suspect that reversal could last into 2021 if bond yields rise further.

4. SNP wins a majority; agitates for independence
UK local elections are due in May 2021. The Scottish National Party could win a majority in the Scottish parliament – recent polls suggest it could win 50%-60% of constituency votes and 40%-55% of regional votes. SNP leader and First Minister Nicola Sturgeon says she intends to press for independence, and polls since June 2020 suggest that Scotland would choose independence. A big SNP majority could strengthen the case for a referendum.

5. Iran elects a hard-line president but improves relations with the US
The Middle East throws up a number of potential powder kegs. For one, Iran is due to elect a new president on June 18 and it seems likely that it will choose a hard-line president. This provides a worrying backdrop in a region neglected by the US over the last decade. However, the real surprise would be if a Biden presidency, with the help of the EU, manages to rekindle the 2015 nuclear deal.

6. Bitcoin falls below $10,000 during 2021

Our model for Bitcoin, based on US bond yields and the dollar, suggested a fair value of $9,000, at a time when the price was $20,000. Though our model based fair value has hardly changed, the market value has since approached $40,000 and some suggest it can go much higher. We are not experts, but this looks like another Bitcoin bubble.

7. South African government debt outperforms
This is carried over from last year and the logic remains the same (though currency weakness scuppered our plans in 2020). The 10-year government yield was 8.78% on 8 January 2021, compared to a CPI inflation rate of 3.2% in November 2020. We believe this offers an interesting cushion against the risk of currency losses, especially given that the South African rand is reasonably valued, in our opinion.

8. Kenyan stocks outperform major indices
In our search for exotic stock market opportunities, we usually look for the holy grail of a dividend yield that exceeds the price/earnings ratio. Examples are rare, with the Nairobi SE 20 the closest that we can find right now.

9. EU carbon goes above €50 per tonne
In last year’s list we suggested EU carbon would finally break above €30 (it did and is now around €35). Climate change is the ultimate externality and we think internalising the problem via pricing mechanisms has a big role to play. The EU carbon allowance scheme is one such solution, where the right to emit carbon can be bought and sold, thus leaving it to the market to set the most efficient way to reduce emissions. With the UN Climate Change Conference (COP26) due in November, and the global economy expected to rebound, we suspect EU carbon may exceed €50/t during 2021.

10. France wins UEFA EURO 2020
Despite football coming home (at least for the semi-final and final stages of the EURO 2020 tournament, now being played in 2021) and England being the bookmaker’s second favourite, it is hard to see them progressing beyond the semi-finals (where we think they will lose to the Netherlands). We reckon that France will beat Belgium (the bookies favourite) in the other semi-final and go on to win the tournament on Sunday 11 July (the same weekend on which they won their first World Cup in 1998).

© 2021 funds europe



Innovative US companies are providing some of the solutions to the climate crisis and transition to a more sustainable economy. We see potential opportunities in areas including renewable energy and…
This white paper outlines key challenges impeding the growth of private markets and explores how technological innovation can provide solutions to unlock access to private market funds for a growing…


Visit our dedicated Ireland channel for all the latest news and analysis on the country's investment industry.