Global Equity Outlook

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Addressing Opportunities for the Post-COVID-19 World

Vaccine rollout improves outlook for global recovery.

The successful introduction of three separate vaccine treatments has strengthened the case for global economic recovery in 2021. As vaccination rates increase and consumer confidence returns, we expect an uptick in demand for previously hard-hit consumer goods and services. Travel-related industries, consumer discretionary and restaurant companies should be beneficiaries of pent-up demand as stay-at-home restrictions are gradually lifted. Additionally, a move toward normalization of global economic activity should benefit cyclically oriented sectors, including industrials, materials and energy, which all underperformed during the worst of the pandemic lockdowns. Many of the companies that suffered most during the crisis are now at valuations that could represent excellent opportunities as their businesses rebound.

We expect the acceleration of existing trends to continue.

Before the onset of COVID-19, the world was already moving toward increased digitalization, greater penetration of e-commerce and online platform use, and more reliance on cloud computing and remote access. Pandemic-led lockdowns increased the demand for contactless services, making critical the speed and reliability of internet access and remote working and learning capabilities. We see such trends continuing to gather speed in 2021 and beyond. In our view, wider rollout of 5G networks, increased use of digital payment services, greater adoption of cloud-based services and remote interactions for business, social, educational and entertainment applications will benefit companies that excel in those industries.

Recovery creates opportunities in cyclicals, small caps and non-U.S. equities.

The expectation of improving global economic activity is driving a rotation to industries and areas pressured during the COVID crisis. We are finding examples of companies whose fundamentals are in early stages of inflection as economic activity normalizes. Cyclical companies exposed to global recovery, global small caps, which have historically led during periods of recovery, and firms outside the U.S., many of which were passed over in favor of U.S.-based large-cap tech companies during the pandemic, may now provide attractive opportunities. We are building portfolios with a balance of firms supported by pandemic-led changes in behavior and those positioned to benefit from global economic recovery.

Multiple Catalysts Combine to Improve EM Outlook

Macroeconomic outlook improves for emerging markets as the global health crisis recedes.

As vaccination progress improves and we move toward a post-COVID-19 world, we expect a global cyclical recovery and improving consumer confidence. This recovery should support EM equities as EM countries put the worst of the pandemic-led restrictions behind them and corporate earnings momentum improves. EM earnings growth rates and valuations remain attractive relative to developed markets. We expect ongoing central bank stimulus programs, a weaker U.S. dollar and improvement in global trade to further support this recovery.

Global expansion, improving growth should help broaden earnings recovery in 2021.

Many of the sectors that lagged in 2020 are leading the recovery in 2021. We expect a sharp reversal in trends in highly cyclical areas, such as industrials and consumer discretionary. We also note that every sector is expected to deliver positive year-over-year growth relative to 2020. Strong secular growth stories remain in place, including e-commerce and online adoption, technology hardware and components. Additionally, we anticipate strength in natural resources, energy and materials as the recovery strengthens, which would support companies in Latin America, parts of Europe and the Middle East.

Reduced uncertainty should provide a tailwind for EM equities.

The clock is still running on President Joe Biden’s first 100 days, but global markets appear to be adapting and have stabilized as tensions around the U.S. election fade. The new president seems determined to continue his tough talk on China regarding unfair competition, intellectual property and human rights. At the same time, we expect the Biden administration to deploy a more balanced and multilateral approach to trade relations that would likely lessen conflicts between the world’s two largest economies. This, in turn, would likely bode well for EM equities, in our view, as reduced uncertainty would help global trade reach pre-pandemic levels.

Q2 2021 Investment Outlook Resources

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

International investing involves special risk considerations, including economic and political conditions, inflation rates and currency fluctuations.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

Diversification does not assure a profit nor does it protect against loss of principal.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

Past performance is no guarantee of future results. Investment returns will fluctuate and it is possible to lose money.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

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