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Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 25 March 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

Counterpoint April 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

TRADE Brexit, US–China tensions (ongoing)

MEDICAL European Lockdowns (ongoing)

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FISCAL EU Recovery Fund (Q3)

MACRO US/UK reopening (ongoing)

MONETARY Global central banks (ongoing)

FISCAL Biden’s infrastructure plan (H2)

MEDICAL Covid-19 vaccine (ongoing)

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MACRO Inflation is low but rising (ongoing)

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This year’s investment environment has been a challenging one for asset allocation, with different regional economies and financial markets moving at different speeds. We’ve concentrated on finding asset classes that are undervalued and have the potential to catch up with the broader market, and then monitoring them carefully when they have done so.

At the start of March we closed our overweight allocation to emerging market (EM) equities against eurozone government bonds. Since we initiated the position, EM equity valuations have risen towards multi-year highs but more recently market momentum has faded. EM equities are one of the most volatile asset classes in our investment universe, and we decided the tactical case for continuing to hold this position was no longer convincing.

We’re exposed to inflation in many positions, most notably US Treasury Inflation-Protected Securities (TIPS), and we’re monitoring the situation closely. Although rising bonds yields can put pressure on some areas of the market, the overall outlook for risky assets remains positive, supported by progress on vaccinations, especially in the US and UK, pent-up demand and policy support.

We’re maintaining our overweight allocation to equities, which are well positioned to benefit from the economic and earnings recovery, in particular US equities. In addition, we have overweight allocations to asset classes that have the potential to catch up with the rest of the market, including UK small-cap stocks and Asian high-yield bonds.

Quintet portfolio

Playing catch-up

We’re continuing to look for assets that have lagged in their recovery across the rest of the market

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EQUITIES
FIXED INCOME
ALTERNATIVES
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Click an asset class to show the sub-asset classes

The asset allocation vector

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Biden’s team are planning a further stimulus package of USD
3 trillion

Financial markets often become preoccupied with a particular theme and at the moment it’s inflation. Government bonds yields have risen (meaning prices have fallen) to reflect concerns that an economic boom could reignite inflationary pressures. Although the scars from the Covid-19 pandemic remain significant, the combination of ample financial stimulus and pent-up demand being unleashed has led many analysts to increase their growth forecasts for 2021.

The gap between countries that have rolled out their vaccination programmes successfully and those that have lagged is widening. Economic activity in continental Europe is slowing due to rising infection rates and lockdown extensions. In contrast, the US and UK should experience an early recovery in services and consumer spending as restrictions are lifted.

Headline inflation (the overall measure) is likely to pick up over the next few months as lockdown restrictions relax and people return to shops, restaurants and offices. Yet core inflation (which excludes more volatile items such as energy and food) should soon settle back down. Our forecasts take into account the key factors that drive inflation, including wages and unemployment, inflation expectations, pipeline price pressures as captured by producer prices, exchange rates, oil prices, the role of China in the global economy and seasonality.

Top chart

Up and down

A temporary spike but inflation is unlikely to run away

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Source: Quintet forecasts, Bloomberg

 Forecasts

Bill Street
Group Chief Investment Officer

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It’s now been more than 12 months since the coronavirus pandemic changed the world in ways we could never have imagined. Although successful vaccinations mean that we’ll be able to see our friends and families again soon, the timing depends on where we live. America’s vaccine rollout has been among the best in the world and the UK continues to have one of the highest vaccination rates. In contrast, the EU moved more slowly in securing contracts and approving vaccines.

This divergence is something for us to consider when making investment decisions. We believe that the overall outlook for risky assets is positive and the global economy should continue to heal as lockdown measures relax and stimulus measures kick in. Inflation is likely to pick up as spending on services and restaurants surges. But it’s probably going to prove a fleeting phenomenon, and not something that will pose a serious, longer-term challenge to markets.

Bill street image

Some countries are recovering faster than others owing to the speed of their vaccination programmes

Spring is coming early for some of us

Welcome

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COUNTERPOINT APRIL 2021

A two-speed recovery

The global economy is recovering but a gap is starting to open up between the regions that are managing their vaccination programmes more effectively

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COUNTERPOINT APRIL 2021

A two-speed recovery

Logo

The global economy is recovering but a gap is starting to open up between the regions that are managing their vaccination programmes more effectively

It’s now been more than 12 months since the coronavirus pandemic changed the world in ways we could never have imagined. Although successful vaccinations mean that we’ll be able to see our friends and families again soon, the timing depends on where we live. America’s vaccine rollout has been among the best in the world and the UK continues to have one of the highest vaccination rates. In contrast, the EU moved more slowly in securing contracts and approving vaccines.

This divergence is something for us to consider when making investment decisions. We believe that the overall outlook for risky assets is positive and the global economy should continue to heal as lockdown measures relax and stimulus measures kick in. Inflation is likely to pick up as spending on services and restaurants surges. But it’s probably going to prove a fleeting phenomenon, and not something that will pose a serious, longer-term challenge to markets.

Headline inflation (the overall measure) is likely to pick up over the next few months as lockdown restrictions relax and people return to shops, restaurants and offices. Yet core inflation (which excludes more volatile items such as energy and food) should soon settle back down. Our forecasts take into account the key factors that drive inflation, including wages and unemployment, inflation expectations, pipeline price pressures as captured by producer prices, exchange rates, oil prices, the role of China in the global economy and seasonality.

middle_banner_mobile.jpg

Financial markets often become preoccupied with a particular theme and at the moment it’s inflation. Government bonds yields have risen (meaning prices have fallen) to reflect concerns that an economic boom could reignite inflationary pressures. Although the scars from the Covid-19 pandemic remain significant, the combination of ample financial stimulus and pent-up demand being unleashed has led many analysts to increase their growth forecasts for 2021.

The gap between countries that have rolled out their vaccination programmes successfully and those that have lagged is widening. Economic activity in continental Europe is slowing due to rising infection rates and lockdown extensions. In contrast, the US and UK should experience an early recovery in services and consumer spending as restrictions are lifted.

New image

Biden’s team are planning a further stimulus package of USD 3 trillion

Buying a recovery

Fiscal spending is another diverging factor. In the US, both houses of Congress have approved Joe Biden’s USD 1.9 trillion stimulus bill, which will send direct payments of up to USD 1,400 to most Americans. Recent reports suggest his economic team are now putting together a USD 3 trillion infrastructure spending plan to combat climate change, reduce inequality and fortify the economy. In contrast, the EU has yet to put its EUR 750 billion ‘recovery fund’ to work.

Currency values are a function of many factors, and one of them is confidence in the outlook for the underlying economy. This relationship explains why the US dollar has been strengthening against the euro, and we expect this trend to continue. We also think long-term government bond yields will rise further, but at a more moderate pace. Short-term bond yields are less likely to rise because central banks are committed to not hiking policy rates for quite a while.

This year’s investment environment has been a challenging one for asset allocation, with different regional economies and financial markets moving at different speeds. We’ve concentrated on finding asset classes that are undervalued and have the potential to catch up with the broader market, and then monitoring them carefully when they have done so.

At the start of March we closed our overweight allocation to emerging market (EM) equities against eurozone government bonds. Since we initiated the position, EM equity valuations have risen towards multi-year highs but more recently market momentum has faded. EM equities are one of the most volatile asset classes in our investment universe, and we decided the tactical case for continuing to hold this position was no longer convincing.

We’re exposed to inflation in many positions, most notably US Treasury Inflation-Protected Securities (TIPS), and we’re monitoring the situation closely. Although rising bonds yields can put pressure on some areas of the market, the overall outlook for risky assets remains positive, supported by progress on vaccinations, especially in the US and UK, pent-up demand and policy support.

We’re maintaining our overweight allocation to equities, which are well positioned to benefit from the economic and earnings recovery, in particular US equities. In addition, we have overweight allocations to asset classes that have the potential to catch up with the rest of the market, including UK small-cap stocks and Asian high-yield bonds.

logo

Invest in a richer life,
however you define it.

This document has been prepared by Quintet Private Bank (Europe) S.A. The statements and views expressed in this document based upon information from sources believed to be reliable – are those of Quintet Private Bank (Europe) S.A. as of 25 March 2021 and are subject to change. This information is defined as non-independent research because it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research, including any prohibition on dealing ahead of the dissemination of this information. This document is of a general nature and does not constitute legal, accounting, tax or investment advice. This document does not provide any individual investment advice and an investment decision must not be based merely on the information and data contained in the document. All investors should keep in mind that past performance is no indication of future performance, and that the value of investments may go up or down. Changes in exchange rates may also cause the value of underlying investments to go up or down.


Copyright © Quintet Private Bank (Europe) S.A. 2021.
All rights reserved. Privacy Statement

updated_label.png
AAT new - Start

Welcome

Spring is coming early for some of us

icon

Some countries are recovering faster than others owing to the speed of their vaccination programmes

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

Up and down

A temporary spike but inflation is unlikely to run away

Source: Quintet forecasts, Bloomberg

Swipe to see the full graph

mobile-chart
icon

Investment focus

Springing back

Owing to their successful vaccination programmes, the US and UK are likely to be at the front of the queue for economic recovery

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Quintet portfolio

Playing catch-up

We’re continuing to look for assets that have lagged in their recovery across the rest of the market

icon

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains the most important issue, risks have receded, Covid-19 vaccination programmes are accelerating, policy easing continues, and inflation and bond yields are rising

Outlook is more certain than last month

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Outlook is less certain than last month

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Counterpoint April 2021

WE TAKE TIME TO LISTEN

Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

Click an asset class to show the sub-asset classes

The asset allocation vector

updated_label.png (copy)

More on our views

When we increase the allocation to one asset class in portfolios, we have to decrease the allocation to another. That’s why our tactical asset allocation (TAA) decisions come in pairs, where we underweight and overweight relative to our strategic asset allocation (SAA) weightings. The specific numerical weights from the chart relate to a EUR balanced portfolio and can be adjusted for different profiles.

US equities / US investment grade bonds
Given our positive outlook, we believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle.

UK small cap / Global equities
UK small caps lagged in the 2020 recovery and valuations are more attractive than for global equities, while its cyclical sector composition is supportive as growth recovers.

Asian high yield bonds / US investment grade bonds
Asian high yield bonds offer significant additional yield over US investment grade bonds, and default risks are well compensated for.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. A weaker US dollar and rising oil prices would be likely drivers of tighter spreads.

US Treasuries / Eurozone government bonds
We have higher conviction in US Treasuries as a diversifier than in European government bonds thanks to their higher yield to maturity and better credit quality.

US Treasury Inflation Protected Securities (US TIPS) / Eurozone government bonds
US TIPS are more attractively valued than EUR government bonds and benefit from rising inflation expectations in the US.

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FISCAL
EU Recovery Fund (Q3)

MACRO US/UK
reopening (ongoing)

FISCAL
Biden’s infrastructure plan (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation is low but rising (ongoing)

New image (copy)

TRADE
Brexit, US–China tensions (ongoing)

MEDICAL
European Lockdowns (ongoing)

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Seeing the world differently

Quintet’s Chief Investment Office share their views on the economy, markets and investing in our monthly Counterpoint publication.
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