Science is winning the battle against the covid-19 coronavirus. The advance in therapies has already contributed to a significant reduction in hospitalisation and fatality rates vis-à-vis the number of cases, while the multiple of approved and soon to be approved vaccines puts the livelihoods of billions of people on track to normalise in 2021. In addition to improving prospects for global health, seven themes are likely to dominate financial markets in 2021, namely:

(1) The global economy heads for a ‘V-shaped’ recovery with Emerging Markets (EM) in the lead;

(2) Fiscal and monetary policies remain expansionary in Developed Markets (DM);

(3) Increasing pressure on DM governments to act on abnormal levels of inequality;

(4) Rising inflation risks in the United States (US) due to the concomitant rebound in economic activity, extremely easy monetary policies, and fiscal expansion;

(5) Growing pressure on the Dollar from large US twin deficits;

(6) Improving liquidity conditions with positive spill overs to asset prices and growth as flows to EM increase on the back of a weaker Dollar;

(7) EM equities followed by EM local bonds look set to perform the best in 2021, while EM Dollar-denominated debt should benefit from favourable technicals and spread compression as the EM risk premium declines.

This report expands on each of the seven themes for 2021 followed by concluding remarks.