Russell Investments’ mid-year market outlook: Strategists expect global reopening trade to stay on course through 2021

Team favors leaning into Canadian equities, sees no reason to doubt 6.5% economic growth

Toronto, June 30, 2021 —  Russell Investments Canada Limited (Russell Investments) has released its mid-year outlook, offering economic insights and market forecasts from the firm’s global team of investment strategists. The team expects a resurgent Canadian economy in the second half of 2021 as the pace of vaccinations increases and lockdowns ease.

“Despite the lockdowns, the Canadian economy is still expected to grow about 3.8% on average over the first half of 2021, which usually would be considered a robust annual figure,” said Shailesh Kshatriya, director, investment strategies at Russell Investments. “Growth should broaden beyond the blistering housing market over the second half of 2021, and we see no reason to doubt the Bank of Canada’s (BoC) 2021 forecasted growth of around 6.5%, a level not experienced since 1973.”

Summarizing the investment decision-making building blocks of cycle, valuation and sentiment, Kshatriya draws the following mid-year conclusions: Value is less attractive, but a positive business cycle supports leaning into Canadian equities, particularly relative to U.S. equities.

Kshatriya believes the BoC’s initial rate hike will occur in 2023, even though its quantitative-easing program will wrap up much sooner. “Canada's close linkages with the U.S. economy mean the BoC won't be able to rush far ahead of the U.S. Federal Reserve or risk unwanted appreciation in the loonie,” he said.

Regarding the Canadian dollar/U.S. dollar exchange rate, which has been rising on a wave of optimism that has lifted commodities, Kshatriya expects it to reach purchasing power parity around $0.84 in the second half of 2021.

As for the Government of Canada’s 10-year bond yield, Kshatriya sees modest upside from current levels as the economy reemerges from lockdowns and the recovery accelerates. However, he doesn’t expect yields to increase at the same pace as earlier this year.

Global market outlook

Russell Investments’ strategists see the global reopening on track at mid-year as COVID-19 vaccination rates climb, and the team believes potential risks such as inflation or a hawkish U.S. Federal Reserve (Fed) won’t derail it. Overall, the team maintains a moderately positive medium-term view on global equities in their mid-year global market outlook.

“We still like the pandemic-recovery trade that favors equities over bonds, the value factor over the growth factor and non-U.S. over U.S. stocks,” said Andrew Pease, global head of investment strategy at Russell Investments. “Inflation is the new concern, but the spike so far appears to be a combination of base effects and supply bottlenecks.”

The team expects it will take until the middle of 2022 for the U.S. economy to recover the lost output from the lockdowns and longer in other economies. They also believe broad-based inflation pressures are unlikely until then. 

“Market expectations for Fed lift-off in 2022 are premature,” Pease said. “We expect the Fed to commence tapering in 2022, with the second half of 2023 the likely timing for the first interest rate hike.”

At mid-year, the team also forecasts U.S. real gross domestic product (GDP) growth of 7% for 2021, which would be the best calendar-year outcome for the U.S. since 1984. The team sees a similarly strong post-lockdown recovery in Europe with 5% GDP growth for the year.

At the beginning of Q3 2021, the team’s views are summarized as follows:

  • Prefer non-U.S. equities to U.S. equities. “The post-vaccine economic recovery should favor undervalued cyclical value stocks over expensive technology and growth stocks. Relative to the U.S., the rest of the world is overweight cyclical value stocks,” Pease said.
  • Expect emerging markets (EM) equities, which have been laggards so far this year, to perform better in the second half as Chinese credit growth stabilizes and vaccines become more available across emerging markets.
  • See high yield and investment grade credit as expensive on a spread basis but expect they should benefit from a positive cycle view that supports corporate profits growth and keeps default rates low.
  • View government bonds as expensive, with yields experiencing upward pressure as output gaps close and central banks look to taper back asset purchases. “We expect the U.S. 10-year Treasury yield to trade in the range of 1.5% to 2.0% over the second half of the year,” Pease said.
  • View real assets as no longer cheap, but they should still benefit from the pandemic-recovery trade. Real Estate Investment Trusts (REITs) have rebounded in anticipation of economic reopening and have recovered all their pandemic loss. Meanwhile, listed infrastructure has lost most of its valuation disadvantage to REITs and should benefit from the global recovery, boosting transport and energy infrastructure demand.
  • Expect the U.S. dollar will weaken later in 2021 as investors unwind Fed-tightening expectations and the global economic recovery becomes more entrenched (given the dollar typically gains during global downturns and declines in the recovery phase.) They see the undervalued euro as the main beneficiary.


For more details, the team’s full report is available here.

About Russell Investments Canada Limited

Russell Investments Canada Limited is a wholly owned subsidiary of Russell Investments Group, Ltd. Established in 1985, Russell Investments Canada Limited has its head office in Toronto.

About Russell Investments  

Russell Investments is a leading outsourced CIO (OCIO) partner and global investment solutions firm providing a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 85-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve the financial security of its clients. The firm is the world’s fifth-largest investment adviser, with CA$3.4 trillion in assets under advisement (as of 12/31/2020) and CA$410.9 billion in assets under management (as of 3/31/2021) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Tokyo, Toronto and Shanghai.

Contact: Steve Claiborne, 206-505-1858,