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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 19 February 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 March 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.

TRADE Brexit impact (ongoing)

TRADE US–China trade tensions (ongoing)

MEDICAL Lockdowns (ongoing)

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FISCAL EU Recovery Fund (Q2)

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FISCAL Biden’s first fiscal package (Q1)

MONETARY Global central banks (ongoing)

MEDICAL Covid-19 vaccine (ongoing)

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MACRO Inflation is low but rising (ongoing)

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As active investment managers, one of our most powerful tools is the ability to adapt to the evolving environment by making tactical asset allocation decisions. This approach involves identifying opportunities that have the potential to deliver attractive returns when considered against the risks involved.

While we believe the general outlook for risky assets is positive, we’re always searching for parts of the market that are largely overlooked by other investors. One area is the Asian high yield bond market, where average yields are 5% higher than those available from US investment grade bonds.

The market is pricing in a default rate of 6% over the next 12 months, and we believe the yields on offer compensate us for this risk. Chinese property developers are the largest issuers of high yield bonds in Asia, and the government is committed to keeping market conditions stable. More generally, the economic outlook for the region remains strong.

While we open an overweight in Asian high yield bonds, we close our overweight in euro high yield bonds. This position has performed well over the past year, with valuations recovering to where they were at the start of 2020. Our analysis suggests the potential for any further returns is slim following this strong period.

Quintet portfolio

Opportunities in Asia

Asian high yield bonds look attractively priced

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EQUITIES
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ALTERNATIVES
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Click an asset class to show the sub-asset classes

The asset allocation vector

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"We’ve upgraded our global economic forecasts as we expect that US consumers and Asian producers will boost growth"

The global economy has proved remarkably resilient this year and the pace of growth is likely to bounce back in the second quarter. Yet the speed of the recovery is uneven around the world. We believe the US will be the first developed economy to rebound. Rapid progress with its vaccination programme and President Biden’s fiscal package should combine to boost consumer spending by unleashing significant pent-up savings.

Many Asian countries have managed the pandemic effectively, which has meant they’ve been able to avoid prolonged lockdowns and keep their economies open. Any increase in demand from US consumers bodes well for manufacturers throughout the region, and in particular companies in China. Exports there are already booming and intra-regional trade flows also remain strong.

In order to gain a more timely and accurate view of economic activity in the US and Europe, we’re extracting data from Google keyword searches. For China, we use the Li Keqiang index, which is based on electricity consumption, railway freight and bank loans. The US and Chinese economies appear to be holding up well. Conditions in the UK and euro area are weaker but their economies have been more resilient against the winter pandemic restrictions than last spring.

Top chart

A growing divergence

Alternative measures of growth suggest the global economy is running at different speeds

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Source: Quintet, OECD Weekly Tracker, Bloomberg (January estimate for China based on Quintet calculations)

quintet-aor-newsletter-teaser-1300px_gl_en.jpg

Bill Street
Group Chief Investment Officer

autograph

The coronavirus pandemic has changed our sense of time and disrupted the rhythms of our lives in different ways. Yet there are likely to be many positive longer-term implications – from the productivity gains that have come from adopting new technologies to more flexibility around how we work. What our economy looks like on the other side depends on a number of issues, including how well vaccines work and whether there are enough of them.

The way in which different regions are managing the health crisis is diverging. While the US and UK are progressing rapidly with their vaccination programmes, the EU is lagging and many Asian countries have already bounced back. While in the short term we’re navigating this evolving investment environment, we remain focused on our longer-term responsibilities as investors, which includes our commitment to engage as active owners.

Bill street image

The response to the health crisis has encouraged many positive changes that are here to stay

A lasting legacy

Welcome

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COUNTERPOINT MARCH 2021

Leaders and laggards

The global economy is bouncing back from the pandemic but some countries are set to make a faster recovery than others

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COUNTERPOINT MARCH 2021

Leaders and laggards

Logo

The global economy is bouncing back from the pandemic but some countries are set to make a faster recovery than others

The coronavirus pandemic has changed our sense of time and disrupted the rhythms of our lives in different ways. Yet there are likely to be many positive longer-term implications – from the productivity gains that have come from adopting new technologies to more flexibility around how we work. What our economy looks like on the other side depends on a number of issues, including how well vaccines work and whether there are enough of them.

The way in which different regions are managing the health crisis is diverging. While the US and UK are progressing rapidly with their vaccination programmes, the EU is lagging and many Asian countries have already bounced back. While in the short term we’re navigating this evolving investment environment, we remain focused on our longer-term responsibilities as investors, which includes our commitment to engage as active owners.

In order to gain a more timely and accurate view of economic activity in the US and Europe, we’re extracting data from Google keyword searches. For China, we use the Li Keqiang index, which is based on electricity consumption, railway freight and bank loans. The US and Chinese economies appear to be holding up well. Conditions in the UK and euro area are weaker but their economies have been more resilient against the winter pandemic restrictions than last spring.

middle_banner_mobile.jpg

The global economy has proved remarkably resilient this year and the pace of growth is likely to bounce back in the second quarter. Yet the speed of the recovery is uneven around the world. We believe the US will be the first developed economy to rebound. Rapid progress with its vaccination programme and President Biden’s fiscal package should combine to boost consumer spending by unleashing significant pent-up savings.

Many Asian countries have managed the pandemic effectively, which has meant they’ve been able to avoid prolonged lockdowns and keep their economies open. Any increase in demand from US consumers bodes well for manufacturers throughout the region, and in particular companies in China. Exports there are already booming and intra-regional trade flows also remain strong.

New image

"We’ve upgraded our global economic forecasts as we expect that US consumers and Asian producers will boost growth"

Continental Europe is lagging, and has been slow to approve vaccines and roll out its vaccination programme. The EU recovery fund has been approved but is still at the planning stage and no money has yet been put to work to reconstruct the region’s pandemic-stricken economies. Meanwhile, the route to economic freedom in the UK is progressing well, where more than 15 million people have now received their first coronavirus vaccine shot.

In line with our assessment that US consumers and Asian producers will boost growth, we’ve upgraded our global economic forecasts (and reduced our expectations for Europe slightly). We also believe that government bond yields could increase by slightly more than previously thought. Notably, extra issuance and higher inflation could push up 10-year US Treasury yields to around 1.5% by the end of the year.

As active investment managers, one of our most powerful tools is the ability to adapt to the evolving environment by making tactical asset allocation decisions. This approach involves identifying opportunities that have the potential to deliver attractive returns when considered against the risks involved.

While we believe the general outlook for risky assets is positive, we’re always searching for parts of the market that are largely overlooked by other investors. One area is the Asian high yield bond market, where average yields are 5% higher than those available from US investment grade bonds.

The market is pricing in a default rate of 6% over the next 12 months, and we believe the yields on offer compensate us for this risk. Chinese property developers are the largest issuers of high yield bonds in Asia, and the government is committed to keeping market conditions stable. More generally, the economic outlook for the region remains strong.

While we open an overweight in Asian high yield bonds, we close our overweight in euro high yield bonds. This position has performed well over the past year, with valuations recovering to where they were at the start of 2020. Our analysis suggests the potential for any further returns is slim following this strong period.

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 19 February 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

updated_label.png
AAT new - Start

Welcome

A lasting legacy

icon

The response to the health crisis has encouraged many positive changes that are here to stay

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

A growing divergence

Alternative measures of growth suggest the global economy is running at different speeds

Source: Quintet, OECD Weekly Tracker, Bloomberg (January estimate for China based on Quintet calculations)

Swipe to see the full graph

mobile-chart
icon

Investment focus

Looking forwards

US consumers and Asian producers are leading the recovery

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Quintet portfolio

Opportunities in Asia

Asian high yield bonds look attractively priced

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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, Brexit is complete and Covid-19 vaccination programmes have started

Outlook is more certain than last month

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Outlook is less certain than last month

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Counterpoint March 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

updated_label.png (copy)

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
Given our positive outlook, we believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle.

Emerging market equities / Eurozone government bonds
Emerging market equities remain supported by strong growth in China and other parts of Asia and show the strongest momentum among equity regions currently.

UK small cap / Global equities
UK small caps lagged in the 2020 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.

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 exposure to US Treasuries as a diversifier than European government bonds thanks to their higher yield to maturity and better credit quality.

US Treasury Inflation Protected Securities (US TIPS) / Eurozone government bonds
US TIPS are more attractively valued than EUR government bonds and benefit from rising inflation expectations in the US.

up.png (copy1)

FISCAL
EU Recovery Fund (Q2)

up.png (copy)

FISCAL
Biden’s first fiscal package (Q1)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation is low but rising (ongoing)

New image (copy)

TRADE
Brexit impact (ongoing)

TRADE
US–China trade tensions (ongoing)

MEDICAL
Lockdowns (ongoing)

New image (copy)
quintet-aor-newsletter-teaser-1300px_gl_en.jpg

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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