
The devastating conflict in Ukraine and sanctions against Russia are disrupting supplies of oil and gas, and pushing up prices for both businesses and consumers
The energy bill
COUNTERPOINT APRIL 2022
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Geopolitical turmoil
Financial markets have fallen significantly following Russia’s invasion and may take some time before they refocus on the fundamentals

Just when we thought things were getting back to normal, a horrific war is raging on the fringes of Europe. The world has been shocked by Russia’s invasion of Ukraine and the humanitarian crisis that is unfolding. Global markets have been unsettled and conditions remain extremely volatile. Rising energy prices are driving inflation even higher, which is making things difficult for central banks to raise interest rates without choking off the post-pandemic recovery.
Our job as investors is to assess how the war is affecting the global economy and markets, and then work out if we need to change our strategy. So what should we do? The first thing to remember is that markets have recovered from falls in the past. History shows that staying invested in a diversified portfolio has been a successful approach through previous geopolitical crises, wars, pandemics and recessions – and is likely to continue to do so.
But at Quintet, we not only seek to create robust multi-asset portfolios that generate competitive investment returns, we also act in our clients’ best interest as holistic and responsible stewards of wealth. By making informed voting decisions and engaging with the companies held in client portfolios, we can help protect and grow client wealth while also benefiting people and planet. Discover more about our objective to be a sustainable company in our 2021 active ownership report.

Bill Street
Group Chief Investment Officer

Higher oil prices are likely to drag down the pace of global growth mostly in Europe and keep global inflation higher for longer
Shock after shock
Top chart
Russia’s invasion of Ukraine is causing a surge in energy costs. This shock comes on top of pandemic-related disruptions, which are easing but not resolved. Europe’s reliance on Russian oil and gas is significantly greater than for the US and the UK. This means the impact on growth (lower) and inflation (higher) is likely to be more significant too. But central banks in Europe will probably turn more dovish relative to the US Federal Reserve and the Bank of England. The odds of EU fiscal support are rising, although we may see measures in the US and the UK too.
Source: Quintet, Eurostat, US Energy Information Administration, UK Dep. For Business, Energy & Industrial Strategy
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Russia’s invasion of Ukraine has triggered a surge in commodity prices, which is dragging down the pace of global economic growth. The euro area is likely to suffer the most because it imports so much Russian oil and gas, and is also exposed to Ukrainian producers of industrial components and agricultural produce. The rest of the world is less vulnerable and remains resilient, but is not completely immune from the ongoing disruption.
We have reduced our growth forecasts and now expect inflation to remain higher for longer. With so much uncertainty around geopolitical turmoil, central bank policies and a range of other factors, there is a risk that economic conditions could weaken further. If the situation in Ukraine is resolved swiftly, then the risks would become more balanced and the global economy should soon recover.
Following Russia’s invasion of Ukraine, we now project higher inflation in most regions and lower economic growth mainly in Europe. But a global recession is unlikely

The asset allocation vector
Click an asset class to show the sub-asset classes

Markets are focusing on the war in Ukraine but in the past geopolitical conflicts tend to have only a limited impact
Reassessing risk
Quintet portfolio
More on our views
The war in Ukraine and its consequences are overshadowing other factors that drive financial markets at the moment. Yet history shows us that even severe geopolitical conflicts tend to have only a temporary impact. We expect economic fundamentals to reassert themselves over our tactical six to 12 months investment horizon. Equity markets, especially in the euro area, have been quick to price in a lower growth outlook and higher risks. But we think the economic consequences from the war will eventually be limited for other regions.
Our most preferred regions tactically remain the US (via equities) and emerging markets/Asia (via equities and credit). The latest strong signs of financial market support and policy easing are particularly encouraging for Chinese assets. The immediate adverse effect of Russian bonds and stocks losing most of their value is already largely behind us.

MACRO Inflation and bond yields (ongoing)
MACRO Restocking inventories (not yet)


MONETARY Central banks (ongoing)
MEDICAL Covid-19 vaccine (ongoing)
FISCAL US and EU stimulus (ongoing)



MACRO Bottlenecks and shortages (ongoing)
MACRO Rising commodity prices (ongoing)

GEOPOLITICS Russia and Ukraine (ongoing)
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Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.
WE TAKE TIME TO LISTEN
Counterpoint April 2022
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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 17 March 2022 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. 2022.
All rights reserved. Privacy Statement
Invest in a richer life,
however you define it.



MACRO Inflation and bond yields (ongoing)
MACRO Restocking inventories (not yet)
MACRO Rising commodity prices (ongoing)


MACRO Bottlenecks and shortages (ongoing)
GEOPOLITICS Russia and Ukraine (ongoing)



MONETARY Central banks (ongoing)
FISCAL US and EU
stimulus (ongoing)

MEDICAL Covid-19 vaccine (ongoing)
Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. The loss in value of Russian bond has been a drag, but that’s now largely behind us. Credit risks for most EM sovereigns is unaffected by the war in Ukraine. Gradually rising US yields will ultimately weigh more on USD IG bonds, in our view.
US Investment grade bonds / Eurozone government bonds
US corporate bonds (currency-hedged) offer an attractive yield pickup over Eurozone government bonds or Gilts. Despite the recent mild widening, we expect spreads to stabilize again as credit risk remains relatively low.
US equities / US investment grade bonds
We believe US stocks will outperform low-yielding US investment grade bonds as the business cycle is maturing but not approaching its end, in our view. Valuations have moderated, while the all-important US domestic consumer sector is still in very good shape and corporate earnings remain solid.
Asian high yield bonds / US investment grade bonds
Asian high yield bond spreads have reached historic peaks in March, offering significant additional yield over US investment grade bonds. While China property fundamentals remain weak, we think default risks are well compensated for and latest signs of policy support are encouraging.
Emerging market equities / Global equities
We believe Emerging market (EM) stocks will outperform global equities as EM equities are trading close to a record discount compared to global equities. As EM growth stabilizes and monetary policy eases, especially in China, we expect EM stocks to be well supported.
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.
More on our views
Contact us
The asset allocation vector
Click an asset class to show the sub-asset classes
Thank you for reading our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.
WE TAKE TIME TO LISTEN
Counterpoint April 2022

Outlook is less certain than last month

Outlook is more certain than last month
Geopolitical uncertainty is high, commodity prices are rising, regional lockdowns are a risk in China, central banks are on the move for now but they could turn more cautious, and fiscal stimulus should increase
WHAT TO LOOK OUT FOR
Monitor

Markets are focusing on the war in Ukraine but in the past geopolitical conflicts tend to have only a limited impact
Reassessing risk
Quintet portfolio

The war in Ukraine is disrupting the global economy but is unlikely to cause a severe slowdown or recession
Lower growth and higher inflation
Investment focus

Source: Quintet, Eurostat, US Energy Information Administration, UK Dep. For Business, Energy & Industrial Strategy
Higher oil prices are likely to drag down the pace of global growth mostly in Europe and keep global inflation higher for longer
Shock after shock
Top chart

Bill Street
Group Chief Investment Officer


Financial markets have fallen significantly following Russia’s invasion and may take some time before they refocus on the fundamentals

Geopolitical turmoil
Welcome

Monitor

Portfolio

Investment focus

Top chart

Welcome

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 17 March 2022 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. 2022.
All rights reserved. Privacy Statement
Invest in a richer life,
however you define it.

Back to top
The war in Ukraine and its consequences are overshadowing other factors that drive financial markets at the moment. Yet history shows us that even severe geopolitical conflicts tend to have only a temporary impact. We expect economic fundamentals to reassert themselves over our tactical six to 12 months investment horizon. Equity markets, especially in the euro area, have been quick to price in a lower growth outlook and higher risks. But we think the economic consequences from the war will eventually be limited for other regions.
Our most preferred regions tactically remain the US (via equities) and emerging markets/Asia (via equities and credit). The latest strong signs of financial market support and policy easing are particularly encouraging for Chinese assets. The immediate adverse effect of Russian bonds and stocks losing most of their value is already largely behind us.
Risk aversion temporarily supporting safe havens
We don’t believe a global recession is likely any time soon. Investors remain cautious about risky assets, which means traditional safe havens like gold and the US dollar should remain supported. We still expect the US Federal Reserve to increase rates this year, while the European Central Bank and Bank of England may be more hesitant. Governments may help businesses and households absorb higher energy costs through fiscal relief measures.
The coronavirus pandemic continues to fade around the world, including across most of Asia, which has lagged behind with its vaccination programme. Infection rates are falling sharply from the peaks at the start of the year. Mobility is rising as restrictions are lifted, especially in the euro area and the UK, supporting economic activity. In contrast, China’s cases are still rising, which is testing its ‘zero-tolerance’ policy and may trigger further lockdowns.
Following Russia’s invasion of Ukraine, we now project higher inflation in most regions and lower economic growth mainly in Europe. But a global recession is unlikely

The pace of economic growth has moved past the peak and is now beginning to slow. While the market is finding it hard to catch up with this new reality, including the consequences of the escalating Russia/Ukraine conflict, we see this as a normalisation from super-strong rates. We’re not concerned about this as we expect growth to remain above-trend in 2022, even if uncertainties have increased. While equity markets had a bad start to the year, they have recovered from the lows thanks to persistently solid earnings growth, before they came under renewed pressure due to latest geopolitical developments.
However, we still see a good chance that the end of this cycle has not been reached yet.
Central banks are now catching up with above-target inflation and are starting to withdraw their emergency stimulus. The Bank of England (BoE) has already raised interest rates and the Fed is expected to follow, with markets expecting several rate increases starting in March. While we continue to monitor the consequences of the latest developments around Russia closely, for now we also expect the European Central Bank (ECB) to hike interest rates before the end of the year, helping the euro to recover against the dollar. While the Russia/Ukraine crisis complicates the near-term market outlook, at this stage we expect any volatility to be relatively short term.

Russia’s invasion of Ukraine is causing a surge in energy costs. This shock comes on top of pandemic-related disruptions, which are easing but not resolved. Europe’s reliance on Russian oil and gas is significantly greater than for the US and the UK. This means the impact on growth (lower) and inflation (higher) is likely to be more significant too. But central banks in Europe will probably turn more dovish relative to the US Federal Reserve and the Bank of England. The odds of EU fiscal support are rising, although we may see measures in the US and the UK too.
Just when we thought things were getting back to normal, a horrific war is raging on the fringes of Europe. The world has been shocked by Russia’s invasion of Ukraine and the humanitarian crisis that is unfolding. Global markets have been unsettled and conditions remain extremely volatile. Rising energy prices are driving inflation even higher, which is making things difficult for central banks to raise interest rates without choking off the post-pandemic recovery.
Our job as investors is to assess how the war is affecting the global economy and markets, and then work out if we need to change our strategy. So what should we do? The first thing to remember is that markets have recovered from falls in the past. History shows that staying invested in a diversified portfolio has been a successful approach through previous geopolitical crises, wars, pandemics and recessions – and is likely to continue to do so.
But at Quintet, we not only seek to create robust multi-asset portfolios that generate competitive investment returns, we also act in our clients’ best interest as holistic and responsible stewards of wealth. By making informed voting decisions and engaging with the companies held in client portfolios, we can help protect and grow client wealth while also benefiting people and planet. Discover more about our objective to be a sustainable company in our 2021 active ownership report.
The devastating conflict in Ukraine and sanctions against Russia are disrupting supplies of oil and gas, and pushing up prices for both businesses and consumers

The energy bill
COUNTERPOINT
APRIL 2022