Wednesday, June 19, 2024

Small Values To Trust Economic Growth

Stock returns in 2021 will not be a matter of size. In any case, large-cap stocks are not starting as big favorites to take advantage of the expected earnings for this year that opened in November the discovery of the coronavirus vaccine.

The force of the latest wave of the pandemic, the new restrictions on activity and the first problems in the distribution of the vaccine have not dampened the optimism with which investors face 2021 for the moment. The promise of immunity is stronger and, Given this hope of economic recovery, 2021 is going to be a prosperous year for small and medium-sized stocks.

Those known as midcaps are among the main investment bets of many managers. Its stock market trajectory in the final stretch of 2020, with the tailwind of the discovery of the vaccine, already heralds profitability in the baseline scenario of economic growth for the new year in the market. Small and midsize indices far outperformed large caps indices in both Europe and the US.

The Stoxx Europe Small saved the year with a rise of 3.2%, compared to the 5.14% decrease of the Euro Stoxx 50; Cac Small registered a rise of 7.21%, compared to the loss of 7.14% of Cac 40, and on the Spanish Stock Exchange small stocks won by a landslide: an 18.93% rebound of the Ibex Small Caps in contrast with the 15.45% decrease in the Ibex. In the US, the Russell 2000 even outperformed the 2020 rises of the Dow Jones and the S&P, posting a rise of 18.36%. And so far in 2021, it adds a stunning revaluation of 9%.

“We think that in 2021 the key will be cyclical, small and global, as the markets and sectors most affected by the confinements begin to reactivate,” they explain from UBS. The Swiss firm recalls that the profits of mid-cap companies are more linked to the economic recovery and foresee that such profits will grow in 2021 at a rate twice as high as those of large capitalization securities.

Under the umbrella of the vaccine, the fiscal stimulus that will come with Joe Biden’s tenure in the US may be the expected booster to revive consumer spending and business confidence. It will inject 1.5 trillion euros into the country’s economy.

The vaccine caused a stock market takeoff of these values ​​in the final stretch of 2020 that experts expect to continue this year

Barclays is another of the firms that is confident in the potential of small stocks in 2021 compared to large ones, especially on the US stock market. “In the United States, we expect small stocks to perform better on the stock market than large caps in the medium term thanks to their greater exposure to the economic cycle, the rebound in profits from lows and cheaper valuations in relative terms”, adds the British firm.

Last year was the undisputed triumph of Wall Street’s tech giants, but the universe of small and medium-sized stocks also contains attractive technology companies, such as the American Palantir, a software company specialized in big data and one of the midcap bettingby Gesconsult.

Although it is in the activities of a more cyclical nature where the potential of these small and medium values ​​pivots for 2021, as is the case of the Austrian construction and concessionaire Strabag, bet on Renta 4, or of the German chemical distribution company Brenntag, that the EDM manager stands out from its portfolio.

Small and medium-sized Spanish securities do not stand out among the range of options at the European level, where there are alternatives with greater capitalization within the category of midcaps and greater liquidity.

At Citi, they point out that the improvement in manufacturing is usually the prelude to an increase in profits in small companies during the following six months. “Recent data supports the expectation of higher earnings potential,” adds the firm. And after the rapid rises of the last two months, the firm is prepared to buy small stocks on the dips.

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