MEDICAL Covid-19 restrictions (ongoing)
MACRO Inflation and bond yields (ongoing)
MACRO Restocking inventories (not yet)
MEDICAL Covid-19 vaccine (ongoing)
FISCAL US & EU infrastructure (ongoing)
MONETARY Central banks (ongoing)
MACRO Bottlenecks and shortages (ongoing)
GEOPOLITICS US–China tensions (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 February 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 20 January 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.
The asset allocation vector
Click an asset class to show the sub-asset classes
Despite a difficult start to the year, we remain positive about the outlook for returns from risk assets over 2022
Holding steady
Quintet portfolio
More on our views
At the start of the year, the prospect of higher interest rates weighed down on those areas of the market that are most sensitive, which includes technology stocks. Yet we believe this sector can continue to deliver decent profits growth and as a result we’re maintaining our overweight in US equities. The share prices of tech companies have already adjusted to reflect the outlook for tighter monetary policy in the US, and it would take a surprise event to hold them back any further from here.
Looking ahead, we think the investment environment remains constructive for returns from risk assets, although they are unlikely to be as strong as they were in 2021. Asian high yield bonds have also struggled so far this year as investors fear a further escalation of the Chinese property crisis. Yet valuations continue to look attractive and the Chinese government has started to ease its stance towards the sector. We’re maintaining our overweight.
We’ve already got a sense of the challenges ahead in 2022 after government bond yields increased notably in the first few weeks of the year, weighing on technology stocks and other areas of the market
The economic cycle should begin to normalise to solid but slower growth as households and businesses continue to spend the savings they accumulated during the pandemic lockdowns
A resetting world
COUNTERPOINT FEBRUARY 2022
Monitor
Portfolio
Investment focus
Top chart
Welcome
Scroll down
Welcome
Stay focused on the long term
It’s easy to lose confidence when the going gets tough but we’re optimistic that markets will settle down over the next few months
Stock markets have been volatile since the start of the year. Inflation wasn’t supposed to still be so high and investors have been unsettled by the prospect of central banks raising interest rates sooner than planned in order to slow the pace of price rises. Markets have also been worrying about the rapid spread of the Omicron variant and whether there will be renewed restrictions on mobility, which could put the breaks on economic activity.
As long-term investors, we’ve already adjusted portfolios to be resilient to rising interest rates and high inflation. For example, we are positioned for rising interest rates, own gold as a strategic hedge and our exposure to equities favours companies that can continue to be profitable by passing on any increased prices to their customers. The pandemic continues to cast its shadow, but we’re confident many of the problems, such as a supply chain disruptions, will continue to fade over the rest of the year as the world resets.
Bill Street
Group Chief Investment Officer
Source: Quintet, Bloomberg
US Treasury yields have already started to rise in anticipation of tighter monetary policy
Off to the races
Top chart
At the start of the year, government bonds sold off sharply (meaning yields rose), led by the US as the Federal Reserve, at the December meeting, debated shrinking its balance sheet soon after the first rate hike, which markets now believe will happen in March rather than April. With inflation still high and the labour market tightening, the Fed may be tempted to move sooner than expected, although Omicron may yet interfere. However, to put things in context, yields remains low and have only just returned to pre-Covid levels.
Read more
The world economy is likely to continue to reset over the course of 2022. The pace of growth has probably already peaked in this cycle but should remain solid. Households and business still have plenty of pent-up savings to fuel the recovery, though less than previously. Inflation has remained stubbornly high and yet is also likely to peak over the next few months. Supply chain bottlenecks and disruptions are easing and there are signs that energy inflation should settle back down.
Central banks are under pressure to tighten monetary policy in order to bring down inflation closer to their 2% targets. Yet they also need to make sure they don’t apply the brakes too soon or too hard. The Bank of England has already increased interest rates and all eyes are now on the US Federal Reserve, which has announced it will soon begin to shrink its balance sheet. Three or four interest rates hikes are also likely before the end of 2022.
MEDICAL
Covid-19 restrictions (ongoing)
MACRO
Inflation and bond yields (ongoing)
MACRO
Restocking inventories (not yet)
We’ve already got a sense of the challenges ahead in 2022 after government bond yields increased notably in the first few weeks of the year, weighing on technology stocks and other areas of the market
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 20 January 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
At the start of the year, the prospect of higher interest rates weighed down on those areas of the market that are most sensitive, which includes technology stocks. Yet we believe this sector can continue to deliver decent profits growth and as a result we’re maintaining our overweight in US equities. The share prices of tech companies have already adjusted to reflect the outlook for tighter monetary policy in the US, and it would take a surprise event to hold them back any further from here.
Looking ahead, we think the investment environment remains constructive for returns from risk assets, although they are unlikely to be as strong as they were in 2021. Asian high yield bonds have also struggled so far this year as investors fear a further escalation of the Chinese property crisis. Yet valuations continue to look attractive and the Chinese government has started to ease its stance towards the sector. We’re maintaining our overweight.
Different directions
Europe is some way behind the UK and US, and the ECB is unlikely to stop buying assets or increase interest rates this year. Meanwhile, China is already decoupling from the rest of the world. Its economy is settling into a slower pace of growth, and its central bank is likely to continue cutting interest rates and keep monetary policy more relaxed. Along with a heavy debt burden in its real estate sector, the country’s zero-Covid policy remains a risk to economic activity.
Although the Omicron variant is spreading rapidly, the risks are greatly reduced. Symptoms are milder and the number of people requiring hospital treatment is much lower, largely due to higher vaccination rates. Despite some regional differences, restrictions on mobility have been less stringent than prior virus waves, at least so far. Geopolitical risks include tensions between the US and both China and Russia, as well as uncertainty surrounding the US mid-term elections but they also remain contained for now.
Portfolio
The world economy is likely to continue to reset over the course of 2022. The pace of growth has probably already peaked in this cycle but should remain solid. Households and business still have plenty of pent-up savings to fuel the recovery, though less than previously. Inflation has remained stubbornly high and yet is also likely to peak over the next few months. Supply chain bottlenecks and disruptions are easing and there are signs that energy inflation should settle back down.
Central banks are under pressure to tighten monetary policy in order to bring down inflation closer to their 2% targets. Yet they also need to make sure they don’t apply the brakes too soon or too hard. The Bank of England has already increased interest rates and all eyes are now on the US Federal Reserve, which has announced it will soon begin to shrink its balance sheet. Three or four interest rates hikes are also likely before the end of 2022.
At the start of the year, government bonds sold off sharply (meaning yields rose), led by the US as the Federal Reserve, at the December meeting, debated shrinking its balance sheet soon after the first rate hike, which markets now believe will happen in March rather than April. With inflation still high and the labour market tightening, the Fed may be tempted to move sooner than expected, although Omicron may yet interfere. However, to put things in context, yields remains low and have only just returned to pre-Covid levels.
Stock markets have been volatile since the start of the year. Inflation wasn’t supposed to still be so high and investors have been unsettled by the prospect of central banks raising interest rates sooner than planned in order to slow the pace of price rises. Markets have also been worrying about the rapid spread of the Omicron variant and whether there will be renewed restrictions on mobility, which could put the breaks on economic activity.
As long-term investors, we’ve already adjusted portfolios to be resilient to rising interest rates and high inflation. For example, we are positioned for rising interest rates, own gold as a strategic hedge and our exposure to equities favours companies that can continue to be profitable by passing on any increased prices to their customers. The pandemic continues to cast its shadow, but we’re confident many of the problems, such as a supply chain disruptions, will continue to fade over the rest of the year as the world resets.
The economic cycle should begin to normalise to solid but slower growth as households and businesses continue to spend the savings they accumulated during the pandemic lockdowns
A resetting world
COUNTERPOINT
FEBRUARY 2022
Investment focus
Monitor
MACRO
Bottlenecks and shortages
(ongoing)
GEOPOLITICS
US–China tensions (ongoing)
Despite a difficult start to the year, we remain positive about the outlook for returns from risk assets over 2022
Holding steady
Quintet portfolio
MEDICAL
Covid-19 vaccine (ongoing)
MONETARY
Central banks (ongoing)
FISCAL US & EU
infrastructure (ongoing)
Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. While spreads look by and large fair, the carry is attractive. Gradually rising US yields will ultimately weigh more on USD IG bonds given their longer duration and 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.
US equities / US investment grade bonds
We believe US stock will outperform low-yielding US investment grade bonds as the business cycle is maturing but not approaching its end, in our view. Pent-up demand is high and earnings momentum remains strong among US corporates.
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. Despite near-tern risks, the 12-month return outlook is appealing.
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 February 2022
Outlook is less certain than last month
Outlook is more certain than last month
While the Omicron variant is a downside risk, Covid-19 vaccination programmes are ongoing and new ones are being developed, inflation remains high and bond yields are now rising as central banks are on the move
WHAT TO LOOK
OUT FOR
Monitor
The global economy is beginning to move at different speeds in terms of the pace of growth and central bank monetary policies
Past the peak
Investment focus
Swipe to see the full graph
Source: Quintet, Bloomberg
US Treasury yields have already started to rise in anticipation of tighter monetary policy
Off to the races
Top chart
Bill Street
Group Chief Investment Officer
It’s easy to lose confidence when the going gets tough but we’re optimistic that markets will settle down over the next few months
Stay focused on the long term
Welcome
