
MEDICAL Covid-19 restrictions (ongoing)

MACRO Inflation and bond yields (ongoing)
MACRO Restocking inventories (not yet)


MONETARY Central banks (ongoing)
MEDICAL Covid-19 vaccine (ongoing)
FISCAL US and EU infrastructure (ongoing)


MACRO Bottlenecks and shortages (ongoing)

GEOPOLITICS Russia tensions with EU/US/NATO (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.
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Counterpoint March 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 17 February 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.


While equities remain volatile, overall emerging markets are attractively priced and poised to outperform global stocks
Positioning for growth
Quintet portfolio
More on our views
As market participants are adjusting to a new monetary policy regime as well as to slowing growth from last year’s stellar levels, equities might remain volatile. Nevertheless, solid corporate earnings growth and gradually rising yields continuously support our preference for stocks and credit over low-yielding bonds.
Emerging market equities underperformed global markets significantly in 2021, leaving them attractively valued. As growth conditions across emerging markets improve, especially in China, we expect emerging market stocks to outperform. Emerging economies, especially in Asia, are also easing monetary policy measures, which makes them appealing over developed markets. Therefore, we have opened an overweight position in the region over global equities – considering that Russia represents less than 3% and 1% of emerging and global equity markets, and less than 4% of emerging market revenues. This is why we think the global earnings picture is unlikely to be impacted materially.

The asset allocation vector
Click an asset class to show the sub-asset classes


Despite the economic cycle normalising from super-strong rates and Russia/Ukraine/geopolitics taking centre-stage, we think economic growth will remain above trend in 2022
Playing Catch-up
COUNTERPOINT MARCH 2022
Monitor
Portfolio
Investment focus
Top chart
Welcome





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Emerging markets had a rocky ride over the past year across economies and markets. But activity appears to be stabilising in many regions, while the longer-term growth differential versus developed markets remains favourable


Welcome
Geopolitical tensions mount
While there are fears that the Russia/Ukraine conflict and tensions with the West could cause lasting ripple effects in markets, most geopolitical shocks tend to be short-lived

Market volatility will probably remain high and safe-haven assets supported. Investors will also focus on energy and commodity prices more generally. From a macro perspective, Europe in particular is exposed to rising oil/gas prices (Brent is past USD 100 per barrel). This could become a stagflationary shock if protracted (rising inflation/slowing growth).
From a market point of view, portfolio diversification at times of high uncertainty is helpful and important.
Rather than timing the market around geopolitics or other events, we rely on fundamental analysis together with thorough risk considerations. There are downside risks to growth and upside risks to inflation, especially in Europe, which is more sensitive to potential disruptions to energy supplies and oil/gas price shocks. But this could turn central banks more dovish once again and, in any case, the global, US and Asian economies are unlikely to be impacted materially.
The well-diversified long-term foundation of our portfolios helps weather geopolitical and other storms better. Rigorous diversification across regions and asset classes becomes especially relevant in times when local market risks dominate. A global approach to asset allocation delivers better risk-adjusted returns over time, reducing the portfolio’s volatility to less than the sum of its parts and protecting better against idiosyncratic risks.
You can read more about our views on the Ukraine-Russia crisis in our latest CIO note.
I’d also like to take this opportunity to tell you about the Quintet Earth fund, the world’s first multi-asset, climate-neutral investment fund, which provides exposure to green bonds and low-carbon equities. You can find out more about this unique fund in this video.
Bill Street
Group Chief Investment Officer

Financial conditions could be about to ease in emerging markets, while they will likely tighten in the US and Europe
Financial conditions at a turning point
Top chart
In response to the pandemic, the US government and the US Federal Reserve (the Fed) deployed vast amounts of monetary and fiscal stimulus to help keep the economy on track. In contrast, several emerging market countries have already seen their policy rates rise sharply as central banks responded to high inflation. Having front-run tighter US policy (with the rate lift-off likely in March), and with a possible rebound of economic activity now that Covid-19 vaccination is progressing, emerging markets may be about to turn a corner, also helped by a slightly weaker US dollar. Financial conditions may start to ease before long in emerging markets, while they will likely tighten further across the US and Europe.

Quintet, Goldman Sachs
Read more
The pace of economic growth has moved past the peak and is now beginning to slow. While the market is finding it hard to catch up with this new reality, including the consequences of the escalating Russia/Ukraine conflict, we see this as a normalisation from super-strong rates. We’re not concerned about this as we expect growth to remain above-trend in 2022, even if uncertainties have increased. While equity markets had a bad start to the year, they have recovered from the lows thanks to persistently solid earnings growth, before they came under renewed pressure due to latest geopolitical developments. However, we still see a good chance that the end of this cycle has not been reached yet.
Central banks are now catching up with above-target inflation and are starting to withdraw their emergency stimulus. The Bank of England (BoE) has already raised interest rates and the Fed is expected to follow, with markets expecting several rate increases starting in March. While we continue to monitor the consequences of the latest developments around Russia closely, for now we also expect the European Central Bank (ECB) to hike interest rates before the end of the year, helping the euro to recover against the dollar. While the Russia/Ukraine
crisis complicates the near-term market outlook, at this stage we expect any volatility to be relatively short term.

MEDICAL Covid-19 restrictions (ongoing)

MACRO Inflation and bond yields (ongoing)
MACRO Restocking inventories (not yet)
Emerging markets had a rocky ride over the past year across economies and markets. But activity appears to be stabilising in many regions, while the longer-term growth differential versus developed markets remains favourable

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 17 February 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
As market participants are adjusting to a new monetary policy regime as well as to slowing growth from last year’s stellar levels, equities might remain volatile. Nevertheless, solid corporate earnings growth and gradually rising yields continuously support our preference for stocks and credit over low-yielding bonds.
Emerging market equities underperformed global markets significantly in 2021, leaving them attractively valued. As growth conditions across emerging markets improve, especially in China, we expect emerging market stocks to outperform. Emerging economies, especially in Asia, are also easing monetary policy measures, which makes them appealing over developed markets. Therefore, we have opened an overweight position in the region over global equities – considering that Russia represents less than 3% and 1% of emerging and global equity markets, and less than 4% of emerging market revenues. This is why we think the global earnings picture is unlikely to be impacted materially.
A different path
In recent months there has been increasing divergence in monetary policy between central banks in the west and those in emerging economies. We expect central banks in several emerging economies to relax monetary policy to help boost slowing economic growth. Despite inflation being elevated, China has lowered interest rates to help cushion the downturn and we anticipate further cuts. Central banks in emerging economies that hiked aggressively in 2021, such as Brazil, will likely stop raising interest rates, and even cut them if growth slows.
Covid-19 watch
New infections have peaked in Europe and the US, with the number of new cases falling by more than half in the UK and by two-thirds in the US since January’s highs. European countries are beginning to relax Covid-19 measures, with Sweden, Denmark and Norway lifting nearly all of their pandemic-related social restrictions. The UK has said it will abolish all Covid-19 regulations, while the US has also relaxed mask requirements. China is still trying to contain outbreaks via its ‘zero tolerance’ policy.
Portfolio

The pace of economic growth has moved past the peak and is now beginning to slow. While the market is finding it hard to catch up with this new reality, including the consequences of the escalating Russia/Ukraine conflict, we see this as a normalisation from super-strong rates. We’re not concerned about this as we expect growth to remain above-trend in 2022, even if uncertainties have increased. While equity markets had a bad start to the year, they have recovered from the lows thanks to persistently solid earnings growth, before they came under renewed pressure due to latest geopolitical developments.
However, we still see a good chance that the end of this cycle has not been reached yet.
Central banks are now catching up with above-target inflation and are starting to withdraw their emergency stimulus. The Bank of England (BoE) has already raised interest rates and the Fed is expected to follow, with markets expecting several rate increases starting in March. While we continue to monitor the consequences of the latest developments around Russia closely, for now we also expect the European Central Bank (ECB) to hike interest rates before the end of the year, helping the euro to recover against the dollar. While the Russia/Ukraine crisis complicates the near-term market outlook, at this stage we expect any volatility to be relatively short term.

In response to the pandemic, the US government and the US Federal Reserve (the Fed) deployed vast amounts of monetary and fiscal stimulus to help keep the economy on track. In contrast, several emerging market countries have already seen their policy rates rise sharply as central banks responded to high inflation. Having front-run tighter US policy (with the rate lift-off likely in March), and with a possible rebound of economic activity now that Covid-19 vaccination is progressing, emerging markets may be about to turn a corner, also helped by a slightly weaker US dollar. Financial conditions may start to ease before long in emerging markets, while they will likely tighten further across the US and Europe.
Market volatility will probably remain high and safe-haven assets supported. Investors will also focus on energy and commodity prices more generally. From a macro perspective, Europe in particular is exposed to rising oil/gas prices (Brent is past USD 100 per barrel). This could become a stagflationary shock if protracted (rising inflation/slowing growth).
From a market point of view, portfolio diversification at times of high uncertainty is helpful and important.
Rather than timing the market around geopolitics or other events, we rely on fundamental analysis together with thorough risk considerations. There are downside risks to growth and upside risks to inflation, especially in Europe, which is more sensitive to potential disruptions to energy supplies and oil/gas price shocks. But this could turn central banks more dovish once again and, in any case, the global, US and Asian economies are unlikely to be impacted materially.
The well-diversified long-term foundation of our portfolios helps weather geopolitical and other storms better. Rigorous diversification across regions and asset classes becomes especially relevant in times when local market risks dominate. A global approach to asset allocation delivers better risk-adjusted returns over time, reducing the portfolio’s volatility to less than the sum of its parts and protecting better against idiosyncratic risks.
You can read more about our views on the Ukraine-Russia crisis in our latest CIO note.
I’d also like to take this opportunity to tell you about the Quintet Earth fund, the world’s first multi-asset, climate-neutral investment fund, which provides exposure to green bonds and low-carbon equities. You can find out more about this unique fund in this video.
Despite the economic cycle normalising from super-strong rates and Russia/Ukraine/
geopolitics taking centre-stage, we think economic growth will remain above trend in 2022

Playing Catch-up
COUNTERPOINT
MARCH 2022
Investment focus

Monitor


MACRO Bottlenecks and shortages (ongoing)
GEOPOLITICS Russia tensions with EU/US/NATO (ongoing)

While equities remain volatile, overall emerging markets are attractively priced and poised to outperform global stocks
Positioning for growth
Quintet portfolio



MONETARY Central banks (ongoing)
FISCAL US and EU infrastructure (ongoing)

MEDICAL Covid-19 vaccine (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 Investment grade bonds / Eurozone government bonds
US corporate bonds (currency-hedged) offer an attractive yield pickup over Eurozone government bonds or Gilts. Despite the recent mild widening, we expect spreads to stabilize again as credit risk remains relatively low.
US equities / US investment grade bonds
We believe US stocks 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.
Emerging market equities / Global equities
We believe Emerging market (EM) stocks will outperform Global equities as EM equities significantly underperformed in 2021 left them trading close to a record discount compared to global equities. As EM growth stabilizes and monetary policy eases, especially in China, we expect EM stocks to be well supported.
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 March 2022

Outlook is less certain than last month

Outlook is more certain than last month
Russia/Ukraine tensions are a downside risks, 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 economic recovery is slowing and geopolitical risks rising, but reasonable levels of growth should support investment returns
Growth to remain above-trend
Investment focus


Swipe to see the full graph
Quintet, Goldman Sachs
Financial conditions could be about to ease in emerging markets, while they will likely tighten in the US and Europe
Financial conditions at a turning point
Top chart

Bill Street
Group Chief Investment Officer

While there are fears that the Russia/Ukraine conflict and tensions with the West could cause lasting ripple effects in markets, most geopolitical shocks tend to be short-lived

Geopolitical tensions mount
Welcome
