2021: real growth or just recovery?

22 December 2020

Since the start of the year, the Italian stock market has plummeted from the record high for the last decade down to the same levels recorded during the 2008 financial crisis, before then recovering the majority of lost ground. In this context, marked primarily by an explosion in volatility, the turning point can without be traced to the days around 20 February when the first cases of Covid-19 started to arise in Europe. In the following months, initial signs of recovery were followed by new drops, connected to the trend in infection numbers and the severity of social distancing measures. This continued until the macro scenario was again shaken up again as the market reacted very positively to news of the definitive victory of Biden (promoter of a significant public-investment plan) and above all news regarding clinical trials and efficacy of the Pfizer, Moderna and AstraZeneca vaccines. There has been a swift rebound, with the FTSE MIB at around -6% YTD at the end of November (from around -20% at the end of October), driven by the cyclical and value stocks that had fallen behind.

With news of greater than 90% efficacy of vaccines and start of the roll-out of doses in the US and UK, forecasting for 2021 means above all trying to predict the speed of vaccine distribution required to allow national governments to completely reopen economies and end social-distancing measures.

We can therefore expect a year with two different speeds: a first quarter and perhaps part of the second (this will depend on how quickly the vaccine is able to significantly slow the spread and keep the virus under control) that are still conditioned by lockdowns and the challenging basis for comparison represented by the initial months of 2020. Then, in the second part of the year, with full recovery mode, we can also expect that savings forced by the impossibility of certain spending during previous months are partially utilised, in addition to having a very favourable basis for comparison.

Italy should also benefit from the spread, that remains at ten-year-high levels, a signal that currently the market is blindly trusting in Europe’s capability to avoid further crises regarding sovereign debt of the member states. This is also thanks to the radical turnaround provided by the Recovery Fund, the first European tool financed with the issue of EU debt, that will help to relaunch the continental economy and particularly the Italian economy, as Italy should receive € 200 billion in coming years.

In this context, it is important to remember that 2021 will not be a year of growth in the true sense, but rather of recovery of ground lost. In fact, estimates from economists speak of a global GDP in 2021 that is sill lower than in 2019. In recent months, in a world (formed of the “developed countries”) where for several years growth has been fast becoming a mirage, the market has demonstrated that it is capable of awarding high multiples only to companies that show they can leverage structural trends to increase their own turnover year on year. Meanwhile, in 2021 we will see many other companies, also from sectors such as industrials or discretionary goods, showing top-line growth given the favourable basis for comparison. However, this will be primarily due to the fact that turnover lost during 2020, in terms of capex and private consumption, will be recovered as soon as the macroeconomic situation restabilises. This means that we will see a continuation of the rebound in cyclical sectors and those impacted most by the pandemic, but we will need to remain cautious in assessing to what extent this growth is simply an effect of pent-up demand or actually a structural trend, perhaps also linked to the governments’ fiscal measures. It is therefore crucial to identify within the different areas which sectors can offer positive structural performance, and within sectors, which companies are better positioned to benefit from the economic rebound.

Interview with Massimo Trabattoni, Head of Italian Equity.


* Pent-up demand refers to a situation when demand for a service or product is unusually strong. Economists generally use the term to describe the general public’s return to consumerism following a period of decreased spending.