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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 20 November 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.

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

Counterpoint December 2020

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 UK–EU trade negotiations (Nov/Dec)

MEDICAL Covid-19 virus

TRADE US–China trade tensions 

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MEDICAL Search for vaccine 

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FISCAL EU Recovery Fund (Q1-21)

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FISCAL Next US fiscal package (Q4/ H1-21)

MONETARY Global central banks 

MONETARY Next ECB QE extension (Dec)

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During the third quarter we dialled down risk in portfolios to reflect slowing economic growth, heightened political risk and reduced visibility about the immediate outlook. Successful Covid-19 vaccine trials and the aftermath of the US election allow us to look ahead to 2021 with more certainty, and we’ve adjusted our asset allocation to reflect our confidence.

Notably, we’ve increased our exposure to risk in portfolios by overweighting US equities, which we believe have the potential to outperform investment grade corporate bonds in today’s environment of low yields. Although it’s still early days, the path of the recovery is now more certain, even though the economy could suffer a temporary 

setback over the winter due to ongoing lockdowns.

We believe the macro backdrop supports equities over bonds, while price momentum on US stocks is positive and improving. In addition, the third-quarter earnings season confirmed that many US companies are on track for a healthy recovery of profits. The rather balanced sector mix between defensives and cyclicals, coupled with a large weight in the structurally supported technology sector, leaves US equities well-positioned.

Quintet portfolio

A positive outlook

We’re more confident about the path of the recovery now that the beginning of the end of the virus crisis is in sight

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EQUITIES
FIXED INCOME
ALTERNATIVES
FX
4.0
3.0
-7.0
0.0
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Click an asset class to show the sub-asset classes

The asset allocation vector

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"we believe we can look through these short-term headwinds to next spring"

The strong results from two late-stage trials of Covid-19 vaccines have fuelled a stock market rally. Yet global coronavirus cases and deaths have continued to soar. In response, national and local governments have reimposed or tightened restrictions on travel and socialising in order to slow the virus’s spread. As a result, economic activity is likely to weaken over the winter, and Europe in particular appears vulnerable to another sharp slowdown.

At this point in the recovery, we need to weigh the worsening coronavirus pandemic against hopes for potential vaccines. The early results are encouraging, although immunising most of the world’s population could prove logistically challenging, while manufacturing and distributing vaccines at scale is likely to take time. However, we believe we can look through these short-term headwinds to next spring, when the recovery should gather momentum as the economy reopens.

economies have adapted, so that the impact on activity is less pronounced. For example, Google’s Mobility Index has dipped, but not by nearly as much as it did back in March and April.

This stringency index records the strictness of lockdowns. Although many countries have re-imposed restrictions on socialising and travel, the measures are more moderate than they were at the start of the coronavirus crisis. Notably, it appears that our 

Top chart

Lockdown light

Our lives are restricted again, but our economy has adapted

icon

Source: Quintet, Oxford COVID-19 Government Response Tracker (OxCGRT)

Bill Street
Group Chief Investment Officer

autograph

The high success rates of Covid-19 vaccine trials have raised hopes of a quicker recovery than previously expected. Although there are still huge challenges ahead in terms of deployment, the beginning of the end seems to be on the horizon. The news has excited stock markets, and triggered a powerful rotation into economically sensitive sectors. This shift is also a reflection of the increased likelihood that company profits and lifestyles will return to normal in 2021.

As we look forward to better days ahead, we remain committed to supporting the transition to a greener economy. There are lots of things we can do as individuals to reduce our carbon footprint, such as changing what we eat and how we travel. As investors, we can channel capital to innovative projects and technologies. To find out more about our efforts to improve the environment, watch the highlights from our recent webinar For a richer planet: carbon reduction and the role humans play.

Bill street image

What a difference a month can make

A new hope

Welcome

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COUNTERPOINT DECEMBER 2020

A shot in the arm

Successful Covid-19 vaccine trials have cheered financial markets as investors look through what’s likely to be a challenging winter for the economy

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COUNTERPOINT DECEMBER 2020

A shot in the arm

Logo

Successful Covid-19 vaccine trials have cheered financial markets as investors look through what’s likely to be a challenging winter for the economy

The high success rates of Covid-19 vaccine trials have raised hopes of a quicker recovery than previously expected. Although there are still huge challenges ahead in terms of deployment, the beginning of the end seems to be on the horizon. The news has excited stock markets, and triggered a powerful rotation into economically sensitive sectors. This shift is also a reflection of the increased likelihood that company profits and lifestyles will return to normal in 2021.

As we look forward to better days ahead, we remain committed to supporting the transition to a greener economy. There are lots of things we can do as individuals to reduce our carbon footprint, such as changing what we eat and how we travel. As investors, we can channel capital to innovative projects and technologies. To find out more about our efforts to improve the environment, watch the highlights from our recent webinar For a richer planet: carbon reduction and the role humans play.

This stringency index records the strictness of lockdowns. Although many countries have re-imposed restrictions on socialising and travel, the measures are more moderate than they were at the start of the coronavirus crisis. Notably, it appears that our economies have adapted, so that the impact on activity is less pronounced. For example, Google’s Mobility Index has dipped, but not by nearly as much as it did back in March and April.

middle_banner_mobile.jpg

The strong results from two late-stage trials of Covid-19 vaccines have fuelled a stock market rally. Yet global coronavirus cases and deaths have continued to soar. In response, national and local governments have reimposed or tightened restrictions on travel and socialising in order to slow the virus’s spread. As a result, economic activity is likely to weaken over the winter, and Europe in particular appears vulnerable to another sharp slowdown.

At this point in the recovery, we need to weigh the worsening coronavirus pandemic against hopes for potential vaccines. The early results are encouraging, although immunising most of the world’s population could prove logistically challenging, while manufacturing and distributing vaccines at scale is likely to take time. However, we believe we can look through these short-term headwinds to next spring, when the recovery should gather momentum as the economy reopens.

New image

"we believe we can look through these short-term headwinds to next spring"

The US election result provides another reason to look ahead with more confidence by reducing the political uncertainty that has overshadowed markets for much of 2020. Although Joe Biden won the race, there has been no ‘blue wave’ that many expected, where the Democrats would have controlled not just the White House but both houses of Congress too. However, Biden’s behaviour is likely to be more predictable internationally and less disruptive domestically.

In the short term, stock markets have experienced a powerful rotation into economically sensitive sectors, as investors have looked ahead to more solid growth potential on the horizon. Over the longer term they should also continue to be supported by central bank monetary policies, including low interest rates and additional liquidity, as well as government stimulus measures, which include replacing lost incomes with subsidies and transfers.

During the third quarter we dialled down risk in portfolios to reflect slowing economic growth, heightened political risk and reduced visibility about the immediate outlook. Successful Covid-19 vaccine trials and the aftermath of the US election allow us to look ahead to 2021 with more certainty, and we’ve adjusted our asset allocation to reflect our confidence.

Notably, we’ve increased our exposure to risk in portfolios by overweighting US equities, which we believe have the potential to outperform investment grade corporate bonds in today’s environment of low yields. Although it’s still early days, the path of the recovery is now more certain, even though the economy could suffer a temporary setback over the winter due to ongoing lockdowns.

We believe the macro backdrop supports equities over bonds, while price momentum on US stocks is positive and improving. In addition, the third-quarter earnings season confirmed that many US companies are on track for a healthy recovery of profits. The rather balanced sector mix between defensives and cyclicals, coupled with a large weight in the structurally supported technology sector, leaves US equities well-positioned.

New image

TRADE
UK–EU trade negotiations (Nov/Dec)

TRADE
US–China trade tensions

down.png (copy)

MEDICAL
Covid-19 virus

New image

MEDICAL 
Search for vaccine 

up.png

MONETARY
Global central banks 

FISCAL
Next US fiscal package (Q4/ H1-21)

down.png (copy)

FISCAL
EU Recovery Fund (Q1-21)

down.png
New image

MONETARY
Next ECB QE extension (Dec)

up.png (copy)
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 20 November 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.

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

updated_label.png
AAT new - Start

Welcome

A new hope

icon

What a difference a month can make

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

Lockdown light

Our lives are restricted again, but our economy has adapted

Source: Quintet, Oxford COVID-19 Government Response Tracker (OxCGRT)

Swipe to see the full graph

mobile-chart
icon

Investment focus

A more certain outlook

The path of the recovery is more certain following successful vaccine trials and the US election results

icon

Quintet portfolio

A positive outlook

We’re more confident about the path of the recovery now that the beginning of the end of the virus crisis is in sight

icon

Monitor

WHAT TO LOOK
OUT FOR

While the global health crisis remains the most important issue, risks have receded now the US election is over and following successful Covid-19 vaccine trials

Outlook is more certain than last month

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Outlook is less certain than last month

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Counterpoint December 2020

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.

Our views, in depth

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
We believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle. Ample monetary and fiscal stimulus are supportive.

Emerging market equities / Eurozone government bonds
Emerging market equities are cheaper than developed market equities on long-term valuation measures, and remain supported by strong growth in China.

Gold / Eurozone government bonds
Gold has had a low correlation with other assets and can act as a diversifier. Low real yields are positive for gold. Fading geopolitical risks are a headwind.

European high yield bonds / Eurozone investment grade bonds
European high yield bonds offer an additional yield of 3.5% over European investment grade bonds, and default risks remain subdued.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers an additional yield of 3% over US investment grade bonds, and a weaker US dollar and rising oil prices are tailwinds.

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
The difference between the yield of nominal bonds and inflation-linked bonds remains lower than our inflation forecasts, which favours US TIPS.

Click an asset class to show the sub-asset classes

The asset allocation vector

updated_label.png (copy)

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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