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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 21 July 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 August 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.

GEOPOLITICS US-China tensions (ongoing)

MACRO Input shortages (ongoing)

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MACRO 
Reopening plans (ongoing)

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FISCAL EU
recovery fund (Q3)

MONETARY Global central banks (ongoing)

FISCAL US infrastructure spending (H2)

MEDICAL Covid-19 vaccine (ongoing)

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MACRO Inflation and bond yields (ongoing)

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Financial markets have been buoyant for most of this year owing to vaccine rollouts. More recently, new variants of the virus have altered the mood and there are creeping concerns about the durability of the economic recovery. Although markets have been more volatile, we believe our longer-term assessment for investment returns remains intact.

The environment should support further gains from equities and credit over the coming months. We have tactical overweight positions in US equities and UK small cap stocks alongside emerging market and Asian high yield bonds.

While economic indicators are likely to moderate from very high levels, this stage of the business cycle is usually favourable for returns from risk assets. Corporate earnings are growing at a healthy pace, while policy support remains ample. The spread of new Covid-19 variants might delay re-opening locally, but the hurdle for new severe lockdowns is higher.

Quintet portfolio

Positioned for the recovery

We’ve made no recent asset allocation changes, with portfolios positioned to capture sectors and regions that should do well as the recovery continues

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EQUITIES
FIXED INCOME
ALTERNATIVES
FX
4.0
0.0
-4.0
0.0

Click an asset class to show the sub-asset classes

The asset allocation vector

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The economic cycle points to expansion, but with differentiation between ‘early reopeners’ and ‘laggards’ along with the occasional setback

Much of the developed world is at an advanced stage of relaxing lockdown restrictions, and their economies are expanding. Although new variants of the virus pose a risk, many countries have already vaccinated over half their populations, which should mitigate the impact. Notably, fewer people are being admitted to hospital than in previous waves. New infections are increasing in Asia and countries that have been slower to vaccinate have introduced measures to slow the spread.

To help assess the investment environment, we’ve created the Quintet Investment Cycle Indicator to identify the phases of the business cycle. It captures a wide range of data, from unemployment and new home sales to consumer confidence and lending rates. Despite a few moderate setbacks lately, the latest readings from our new measure continue to suggest the recovery is in its early phases and has further to run. Further virus-related setbacks are perhaps likely, but the long-term outlook remains positive.

Upward revisions to the growth outlook and surging inflation caused the US Treasury yield curve to steepen in the first half of the year. It has since flattened. Markets have become more confident that inflation will not spiral out of control, and the Fed has suggested it may increase rates sooner than expected – although they’re unlikely to change for the next couple of years. We believe markets may have overreacted and long-term yields can move higher again, particularly when the Fed announces that it will begin to taper its asset purchase programme.

Top chart

A fading rates rally

Long-term bond yields have fallen, but we think there’s room for them to move higher again later this year

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Source: Quintet, Bloomberg

Yield (%)

Bill Street
Group Chief Investment Officer

autograph

As the world enters the next phase of the pandemic, countries that have rolled out widespread vaccination programmes are already diverging from those that have been less successful. Partygoers were ecstatic to see their favourite clubs reopen after almost all restrictions in England were eased recently, with queues forming around the block until the midnight deadline arrived. In contrast, athletes will be competing in empty stadiums at this year’s Tokyo Olympics after the government announced a ban on all spectators.

New variants of Covid-19 are likely to prolong the pandemic, yet glimpses of its legacy are emerging. One is the digital transformation of so many aspects of our lives, which has accelerated over the past year. It’s a theme we explored recently when we spoke to those at the forefront of Europe’s digital revolution. From music to fashion and social enterprise, technology is fast becoming a critical tool that underpins many industries, and you can find out more here.

Bill street image

The pandemic isn’t over yet, but the world is starting to settle into new rhythms

Dancing to a different beat

Welcome

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COUNTERPOINT AUGUST 2021

Navigating
the reopening

New variants are prolonging the pandemic and the economic recovery is likely to suffer some temporary setbacks along the way

Logo

COUNTERPOINT 
AUGUST 2021

Navigating
the reopening

Logo

New variants are prolonging the pandemic and the economic recovery is likely to suffer some temporary setbacks along the way

As the world enters the next phase of the pandemic, countries that have rolled out widespread vaccination programmes are already diverging from those that have been less successful. Partygoers were ecstatic to see their favourite clubs reopen after almost all restrictions in England were eased recently, with queues forming around the block until the midnight deadline arrived. In contrast, athletes will be competing in empty stadiums at this year’s Tokyo Olympics after the government announced a ban on all spectators.

New variants of Covid-19 are likely to prolong the pandemic, yet glimpses of its legacy are emerging. One is the digital transformation of so many aspects of our lives, which has accelerated over the past year. It’s a theme we explored recently when we spoke to those at the forefront of Europe’s digital revolution. From music to fashion and social enterprise, technology is fast becoming a critical tool that underpins many industries, and you can find out more here.

Upward revisions to the growth outlook and surging inflation caused the US Treasury yield curve to steepen in the first half of the year. It has since flattened. Markets have become more confident that inflation will not spiral out of control, and the Fed has suggested it may increase rates sooner than expected – although they’re unlikely to change for the next couple of years. We believe markets may have overreacted and long-term yields can move higher again, particularly when the Fed announces that it will begin to taper its asset purchase programme.

middle_banner_mobile.jpg

Much of the developed world is at an advanced stage of relaxing lockdown restrictions, and their economies are expanding. Although new variants of the virus pose a risk, many countries have already vaccinated over half their populations, which should mitigate the impact. Notably, fewer people are being admitted to hospital than in previous waves. New infections are increasing in Asia and countries that have been slower to vaccinate have introduced measures to slow the spread.

To help assess the investment environment, we’ve created the Quintet Investment Cycle Indicator to identify the phases of the business cycle. It captures a wide range of data, from unemployment and new home sales to consumer confidence and lending rates. Despite a few moderate setbacks lately, the latest readings from our new measure continue to suggest the recovery is in its early phases and has further to run. Further virus-related setbacks are perhaps likely, but the long-term outlook remains positive.

New image

The economic cycle points to expansion, but with differentiation between ‘early reopeners’ and ‘laggards’ along with the occasional setback

A temporary spike
Unsurprisingly, inflation has picked up as lockdowns have eased and consumers have been able to start spending again. Bottlenecks in global supply chains have also contributed to a rise in prices as businesses struggle to keep up with demand. Although the latest figures have been a bit higher than expected, bond markets have been mostly relaxed. Fixed income investors believe the spike is likely to be temporary and that it will probably fall back down.

Even if the pace of economic growth slows, it’s unlikely to be substantial owing to ongoing monetary policy support from central banks in addition to government stimulus measures. The Fed will probably make an announcement about reducing its asset purchase programme later this year, which is likely to put upward pressure on long-term bond yields. Yet the level of support is unlikely to change over the summer months.

Financial markets have been buoyant for most of this year owing to vaccine rollouts. More recently, new variants of the virus have altered the mood and there are creeping concerns about the durability of the economic recovery. Although markets have been more volatile, we believe our longer-term assessment for investment returns remains intact.

The environment should support further gains from equities and credit over the coming months. We have tactical overweight positions in US equities and UK small cap stocks alongside emerging market and Asian high yield bonds.

While economic indicators are likely to moderate from very high levels, this stage of the business cycle is usually favourable for returns from risk assets. Corporate earnings are growing at a healthy pace, while policy support remains ample. The spread of new Covid-19 variants might delay re-opening locally, but the hurdle for new severe lockdowns is higher.

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 21 July 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

AAT new - Start

Welcome

Dancing to a different beat

icon

The pandemic isn’t over yet, but the world is starting to settle into new rhythms

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

A fading rates rally

Long-term bond yields have fallen, but we think there’s room for them to move higher again later this year

Source: Quintet, Bloomberg

Swipe to see the full graph

mobile-chart
icon

Investment focus

The recovery remains on track

Setbacks are inevitable, but they are likely to be fleeting as the world continues to fight back against the pandemic

icon

Quintet portfolio

Positioned for the recovery

We’ve made no recent asset allocation changes, with portfolios positioned to capture sectors and regions that should do well as the recovery continues

icon

Monitor

WHAT TO LOOK
OUT FOR

While the Delta variant remains a key issue, Covid-19 vaccination programmes are ongoing, reopening is happening, policy easing continues, inflation is picking up temporarily while bond yields have declined

Outlook is more certain than last month

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Outlook is less certain than last month

down.png

Counterpoint August 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

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 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.

Global equities / European government bonds
As the business cycle progresses supportive factors for equities stay in place, including growth in global corporate earnings, market momentum and monetary and fiscal support.

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 Investment grade bonds  / Eurozone government bonds
The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors.

MACRO 
Reopening plans (ongoing)

up.png (copy)

FISCAL EU
recovery fund (Q3)

FISCAL US
infrastructure spending (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation and bond yields (ongoing)

New image (copy)
down.png (copy)

TRADE
Geopolitical tensions (ongoing)

MACRO
Input shortages (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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