COUNTERPOINT AUGUST 2020

Asynchronous paths

The world economy is recovering – but at different speeds. China is leading the way and activity in Europe is picking up, but the US is suffering a temporary setback

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Bill Street
Group Chief Investment Officer

The coronavirus pandemic continues to cast a shadow over the world and is likely to continue doing so until there’s a vaccine to protect us against the disease. Yet the economy is reopening and the recovery is gaining momentum. We’re particularly encouraged by the announcement of the European Union’s EUR 750 billion recovery fund.

At Quintet we’ve been focussing on our sustainable agenda and, as part of Plastic Free July, we have committed to eliminating all plastic consumable products from our 50-city network by the end of the year.  You can read more about reducing single use-plastics here, in our article discussing a plastic-free future with Daniel Webb, founder of the Every Day Plastic project.

Welcome

NO GOING BACK

Some aspects of our lives may never return to the way they were

Top chart

CHARTING NEW
TERRITORY

Europeans are venturing back out, but Americans have become more cautious

Google has recently started to publish aggregated, anonymised data showing how people’s movements have changed throughout the pandemic. We’ve been monitoring the indices for retail & recreation and transit 

stations as a real-time guide to how the recovery is progressing. The latest report suggests economic activity is picking up in Europe, where infection rates are low, but stalling in the US as targeted lockdowns return.

Investment focus

FAIR WINDS

Europe gets a tailwind in the form of more fiscal stimulus. Will the US follow suit?

"The European recovery fund is a game-changer"

EQUITIES
FIXED INCOME
ALTERNATIVES
FX
CASH
4.0
3.0
-7.0
0.0
0.0
N

The asset 
allocation vector

Click an asset class to show the sub-asset classes

Quintet portfolio

A SUPPORTIVE ENVIRONMENT

We remain confident about the outlook for investment returns over the long term

The strategy behind our model portfolio has not changed over the past month and we believe the current balance of traditional and alternative investments is appropriate for the economic environment. That includes overweight allocations to equities, in particular the technology and healthcare sectors in the US, as well as selective emerging markets. We also see potential
in some sectors of the corporate bond

market, specifically euro high yield and emerging market debt denominated in hard currencies. To offset various risks, we include assets that have historically been more stable during periods of market stress, including gold, US Treasuries and the Japanese yen. We have an underweight allocation to European government bonds and UK gilts, which look unattractive at today’s prices.

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains the most important issue, the upcoming US presidential election and ongoing global trade tensions are risks.

Copyright © Quintet Private Bank (Europe) S.A. 2020. All rights reserved. Privacy Statement

MONETARY Global central banks 

FISCAL Next US fiscal package (Q3)

FISCAL EU Recovery Fund 

MEDICAL Search for vaccine 

POLITICAL US Presidential election (Nov)

TRADE UK–EU trade negotiations (Oct/Dec)

TRADE US–China trade tensions 

Counterpoint July 2020

WE TAKE TIME TO LISTEN

This is the first edition of our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

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 27 July, 2020 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.

The way in which each country responded at the start of the coronavirus crisis is influencing its ability to recover. Those that introduced strict lockdown measures are finding they are able to reopen their economies and contain the virus, including China and Europe. In contrast, many of those that didn’t are suffering from a sharp increase in new infections and their recoveries are faltering.

China has returned to growth. It has all but eliminated Covid-19 since February, which has allowed the economy to get back into gear. Although Europe has lagged so far, its economy is also shifting up a gear and should catch up further. We believe the recently announced European recovery fund is a game-changer for the region.

Source: Google Mobility Index for Retail & Recreation and Transit Stations categories, as of July 21st
(Euro area = GDP-weighted average of Germany, France, Italy and Spain)

Google Mobility Index (7-Day Moving Average)

Welcome

Top chart

Investment focus

Portfolio

Monitor

COUNTERPOINT AUGUST 2020

Asynchronous paths

The world economy is recovering – but at different speeds. China is leading the way and activity in Europe is picking up, but the US is suffering a temporary setback

The coronavirus pandemic continues to cast a shadow over the world and is likely to continue doing so until there’s a vaccine to protect us against the disease. Yet the economy is reopening and the recovery is gaining momentum. We’re particularly encouraged by the announcement of the European Union’s EUR 750 billion recovery fund.

At Quintet we’ve been focussing on our sustainable agenda and, as part of Plastic Free July, we have committed to eliminating all plastic consumable products from our 50-city network by the end of the year.  You can read more about reducing single use-plastics here, in our article discussing a plastic-free future with Daniel Webb, founder of the Every Day Plastic project.

Google has recently started to publish aggregated, anonymised data showing how people’s movements have changed throughout the pandemic. We’ve been monitoring the indices for retail & recreation and transit stations as a real-time guide to how the recovery is progressing. The latest report suggests economic activity is picking up in Europe, where infection rates are low, but stalling in the US as targeted lockdowns return.

The way in which each country responded at the start of the coronavirus crisis is influencing its ability to recover. Those that introduced strict lockdown measures are finding they are able to reopen their economies and contain the virus, including China and Europe. In contrast, many of those that didn’t are suffering from a sharp increase in new infections and their recoveries are faltering.

China has returned to growth. It has all but eliminated Covid-19 since February, which has allowed the economy to get back into gear. Although Europe has lagged so far, its economy is also shifting up a gear and should catch up further. We believe the recently announced European recovery fund is a game-changer for the region.

"The European recovery fund is a game-changer"

In contrast, the US has hit a speedbump. Some US states have had to reimpose many of the curbs they had only recently lifted to control the spread of the virus. The early lifting of lockdown measures had resulted in businesses reopening and people returning to work. A recent fall in consumer activity is likely to reinforce the case for extra fiscal stimulus and we expect a new package to be announced over the summer.

We’re watching three key dimensions to help us determine the speed of the economic recovery – corporate activity, consumer spending and the spread of Covid-19. Government rescue packages and central bank stimulus measures have already done much to help businesses and workers through the crisis, and their ongoing support is crucial for the recovery to continue.

The strategy behind our model portfolio has not changed over the past month and we believe the current balance of traditional and alternative investments is appropriate for the economic environment. That includes overweight allocations to equities, in particular the technology and healthcare sectors in the US, as well as selective emerging markets.

We also see potential in some sectors of the corporate bond market, specifically euro high yield and emerging market debt denominated in hard currencies. To offset various risks, we include assets that have historically been more stable during periods of market stress, including gold, US Treasuries and the Japanese yen. We have an underweight allocation to European government bonds and UK gilts, which look unattractive at today’s prices.

MONETARY
Global central banks

FISCAL
Next US fiscal package (Q3)

FISCAL 
EU Recovery Fund 

MEDICAL 
Search for vaccine 

POLITICAL
US Presidential election (Nov)

Copyright © Quintet Private Bank (Europe) S.A. 2020. All rights reserved. Privacy Statement

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 27 July, 2020 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.

TRADE
UK–EU trade negotiations (Oct/Dec)

TRADE
US–China trade tensions

Welcome

NO GOING BACK

Some aspects of our lives may never return to the way they were

Bill Street
Group Chief Investment Officer

Top chart

CHARTING NEW
TERRITORY

Europeans are venturing back out, but Americans have become more cautious

Source: Google Mobility Index for Retail & Recreation and Transit Stations categories, as of July 21st
(Euro area = GDP-weighted average of Germany, France, Italy and Spain)

Google Mobility Index (7-Day Moving Average)

Investment focus

FAIR WINDS

Europe gets a tailwind in the form of more fiscal stimulus. Will the US follow suit?

Quintet portfolio

A SUPPORTIVE ENVIRONMENT

We remain confident about the outlook for investment returns

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains the most important issue, the upcoming US presidential election and ongoing global trade tensions are risks.

Counterpoint July 2020

WE TAKE TIME TO LISTEN

This is the first edition of our monthly update. Please contact us if you have any questions, remarks or suggestions regarding this update.

Our asset allocation vector explained

The asset allocation vector reflects the evolving investment environment by specifying adjustments relative to a portfolio’s benchmark weights 

How to interpret the vector
A positive view means that we see more value in an asset class or sub-asset class and hold more than the benchmark allocation (overweight). A negative view means we hold less than the benchmark allocation (underweight). The sum of the weights across all asset classes is zero – if you increase in one area you need to decrease in another. Overall, relative to our EUR balanced benchmark we currently hold 7% less of the portfolio in fixed income and instead hold 4% more in equities and 3% more in alternatives.

The view of each asset class is made up of sub-asset class views. Although we are negative on fixed income overall (-7%) there are areas where we see potential, such as Euro High Yield (+3%).  The sum of the sub-asset class adjustments for each asset class represents the total asset class adjustment.

The specific numerical weights given here relate to a EUR balanced portfolio and can be adjusted for different profiles.


Contact us

For further information, please visit: www.quintet.com

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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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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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