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By Jan-Patrick Barnert and Michael Msika, macro commentators at Bloomberg

As investors enter the final month of a roller-coaster year for markets, the view ahead appears rosy whether you ask economists, portfolio managers or strategists. With few alternatives to equities on the horizon for 2021, the debate is more centered around which regions, sectors or styles will lead to maximum returns.

Starting with some bottom-up analysis, the 12-month price target for the Stoxx Europe 600 Index derived from all the single stock targets offers an upside of about 7% from Monday’s close. That’s even after a record monthly gain of 14% in November.

The next few months will be key, and in the spring, “we will see a significant upturn in growth,” says Jens Wilhelm, a member of Union Investment’s board of managing directors responsible for portfolio management. He sees 2021 as a “year of opportunities.”

Strategists at Helaba point out that while stocks are stuck between high valuations, a lack of alternatives and still some need of fiscal and monetary support, the prospects of further steps toward a vaccine — and with that, a dynamic economic recovery — hold the promise of making them “the best traditional asset class in 2021.”

The only thing needed to justify this positive outlook, is for neither of the two big shocks of the past two years — the pandemic’s impact and trade war uncertainty — to repeat in 2021, say Berenberg economists.

As it happens, markets are anticipating a smooth ride across the next year, with the maturity term structure of 1-month to 12-month volatility collapsing to offer virtually no spreads between the terms.

So where should investors look to allocate in so bullish a scenario? For once, Europe seems promising. Deutsche Bank strategists see the S&P 500 as fully valued and expect the rotation into cyclicals and away from stay-at-home megacaps to be the main trade. “This may mean a rare period of European equity outperformance,” they write. In a similar move, their peers at JPMorgan on Monday raised euro-area equities to overweight, while downgrading U.S. shares to neutral.

Barclays’ strategist Emmanuel Cau recommends reflation trades like cyclicals over defensives and value versus growth, saying emerging-market equities are the main beneficiaries. And while he sees catch-up potential for Europe, he says the region faces “sticky structural profitability challenges.”

When it comes to global allocations, emerging markets appear to be in a good spot to lead the economic recovery in 2021, propelled by China and supported by a weaker U.S. dollar, says Pictet Asset Management Chief Strategist Luca Paolini. Environmental concerns will also become a greater priority, fueling growth in sectors like clean energy, according to him.

Overall, a common view is that there are few alternatives to stocks in order to get real returns. While positioning was relatively bearish or neutral for most of 2020, it has potential to pick up further as sentiment turned bullish, according to Goldman Sachs strategist Christian Mueller-Glissmann. Any risks to keep an eye on? Second-wave and inoculation disappointments, of course, but also higher market concentration — particularly in the U.S., regulation, taxation, inflation, rates volatility, as well as policy uncertainty, he says.