
MACRO Inflation and bond yields (ongoing)

MEDICAL Covid-19 vaccine (ongoing)
FISCAL US infrastructure (Q4)
MONETARY Fed tapering (Q4)
FISCAL EU infrastructure (Q4)
MACRO
Restocking inventories (not yet)

MACRO Input shortages (ongoing)
GEOPOLITICS US–China tensions (ongoing)
GEOPOLITICS Energy spike (ongoing)
Contact us
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 November 2021
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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 22 October 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
Invest in a richer life,
however you define it.

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


The outlook for investment returns remains positive, but we’re adjusting our exposures to reflect the evolving environment
Dialling down risk
Quintet portfolio
More on our views
We continue to believe the economic outlook is positive and that there’s more value in US equities, emerging market (EM) sovereign debt and Asian high yield bonds than in low- or negative-yielding government bonds. However, we acknowledge that conditions have weakened slightly. Momentum in stock markets has decelerated meaningfully over the past few months. Economic and company earnings growth is still solid but probably past its peak. Meanwhile, the risk of prolonged supply shortages is affecting certain sectors and central banks are scaling back their monetary support. In our view, the cycle has not reached its end, but the risk–return outlook for cyclical asset classes has deteriorated slightly.
Asset allocation changes
We have reduced our equity overweight versus bonds by closing our overweight position in UK small cap equities. At the same time, we have reintroduced government bonds, while keeping a significant underweight in duration.
UK small caps are among the most cyclical equity markets, given their sector composition. With the pace of global growth decelerating from recent or even record highs, conditions could become more challenging for these companies. The UK economy faces severe headwinds from transportation shortages, rising gas prices and the increasing likelihood of higher interest rates.
We continue to overweight risky assets in portfolios. First, US stocks, which offer a balanced sector mix and strong earnings momentum. Second, EM sovereign bonds for their carry (relatively higher yields compared with developed government bonds). Third, Asian high yield bonds for their attractive and asymmetric return outlook over the next six to 12 months.
Bottlenecks are slowing growth more than the pace of normalisation that was always likely to kick in after reopening


Higher energy prices are weighing down on the global economy at the moment, but the outlook remains positive
An energised market
COUNTERPOINT NOVEMBER 2021
Monitor
Portfolio
Investment focus
Top chart
Welcome





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Welcome
When the wind blows
The recent increase in oil and gas prices is pushing up the rate of inflation but it’s likely to settle back down

Energy prices have been rising sharply following an increase in demand and bottlenecks in supply. The lack of wind is another reason – gas-fired power stations have had to make up for reduced output from wind turbines. These dynamics are particularly evident in the UK, with the economy impacted by the surge more than elsewhere and where interest rate hikes now appear likely sooner rather than later.
The energy shortage has rattled financial markets because investors are worried about the fallout. Government bond yields have risen and stock markets wobbled. However, we continue to believe this type of inflation spike, rather than becoming a self-fulfilling spiral, will eventually settle back down as the global economy readjusts from the disruption caused by the Covid-19 virus.
Although the pandemic continues to cast its shadow, many of us are eager to embrace life’s pleasures as cultural events open to visitors again. The latest feature in our For a richer life series covers the International Documentary Film Festival Amsterdam. Artistic Director Orwa Nyrabia explains the value of documentary filming and how the festival has evolved.
Bill Street
Group Chief Investment Officer
Source: Quintet, Bloomberg

Higher inflation today doesn’t mean that it will remain high tomorrow
Living in the moment
Top chart
Central bankers keep a close eye on inflation expectations. If households expect prices to spiral higher, policymakers may need to increase interest rates. Yet short-term expectations (the next 12 months) tend to be heavily influenced by the current level of inflation. This makes them a poor indication of future monetary policy. With inflation likely to settle back down, we believe the Fed is likely to wait at least another year before it begins to hike rates.
Read more
Higher energy prices are affecting the global economy in two main ways. First, the pace of growth is slowing, and yet a slowdown was inevitable at some point after the rapid expansion during the early phase of the recovery. Second, inflation is elevated and may remain so for a bit longer before settling back down. Despite some concerns of stagflation (where inflation is high and growth is low), we believe the situation is unlikely to deteriorate significantly.
The economic cycle may feel like it is beginning to enter a more mature period. However, it’s still young, having just restarted after the shock of the pandemic-induced lockdowns last year. The disruptions, shortages and bottlenecks that are occurring as the global economy readjusts are slowing the pace of economic growth. But there is already evidence that some of these issues are fading and we believe the outlook remains positive.
GEOPOLITICS
US–China tensions (ongoing)

MACRO
Input shortages (ongoing)
GEOPOLITICS
Energy spike (ongoing)
Different directions
Central banks are diverging. Investors expect the Bank of England to increase rates before year-end for the first time since the Covid-19 crisis after policymakers warned about rising inflation. In the US, core inflation is tentatively stabilising. So although the Federal Reserve may begin tapering its asset purchases soon, a rate hike is probably at least a year away. Meanwhile, the ECB is likely to keep its policies unchanged for even longer.
Foreign exchange rates are likely to reflect these diverging monetary policies. The US dollar will probably strengthen against the euro in the near term, driven largely by the difference in government bond yields between the two regions. We believe that sterling will also appreciate against the euro as the UK recovers from supply shortages, some of which are related to the Brexit readjustment.
Investment focus

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 22 October 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
Invest in a richer life,
however you define it.

Back to top
We continue to believe the economic outlook is positive and that there’s more value in US equities, emerging market (EM) sovereign debt and Asian high yield bonds than in low- or negative-yielding government bonds. However, we acknowledge that conditions have weakened slightly. Momentum in stock markets has decelerated meaningfully over the past few months. Economic and company earnings growth is still solid but probably past its peak. Meanwhile, the risk of prolonged supply shortages is affecting certain sectors and central banks are scaling back their monetary support. In our view, the cycle has not reached its end, but the risk–return outlook for cyclical asset classes has deteriorated slightly.
Asset allocation changes
We have reduced our equity overweight versus bonds by closing our overweight position in UK small cap equities. At the same time, we have reintroduced government bonds, while keeping a significant underweight in duration.
UK small caps are among the most cyclical equity markets, given their sector composition. With the pace of global growth decelerating from recent or even record highs, conditions could become more challenging for these companies. The UK economy faces severe headwinds from transportation shortages, rising gas prices and the increasing likelihood of higher interest rates.
We continue to overweight risky assets in portfolios. First, US stocks, which offer a balanced sector mix and strong earnings momentum. Second, EM sovereign bonds for their carry (relatively higher yields compared with developed government bonds). Third, Asian high yield bonds for their attractive and asymmetric return outlook over the next six to 12 months.
Bottlenecks are slowing growth more than the pace of normalisation that was always likely to kick in after reopening

Monitor

Higher energy prices are affecting the global economy in two main ways. First, the pace of growth is slowing, and yet a slowdown was inevitable at some point after the rapid expansion during the early phase of the recovery. Second, inflation is elevated and may remain so for a bit longer before settling back down. Despite some concerns of stagflation (where inflation is high and growth is low), we believe the situation is unlikely to deteriorate significantly.
The economic cycle may feel like it is beginning to enter a more mature period. However, it’s still young, having just restarted after the shock of the pandemic-induced lockdowns last year. The disruptions, shortages and bottlenecks that are occurring as the global economy readjusts are slowing the pace of economic growth. But there is already evidence that some of these issues are fading and we believe the outlook remains positive.

Central bankers keep a close eye on inflation expectations. If households expect prices to spiral higher, policymakers may need to increase interest rates. Yet short-term expectations (the next 12 months) tend to be heavily influenced by the current level of inflation. This makes them a poor indication of future monetary policy. With inflation likely to settle back down, we believe the Fed is likely to wait at least another year before it begins to hike rates.
Energy prices have been rising sharply following an increase in demand and bottlenecks in supply. The lack of wind is another reason – gas-fired power stations have had to make up for reduced output from wind turbines. These dynamics are particularly evident in the UK, with the economy impacted by the surge more than elsewhere and where interest rate hikes now appear likely sooner rather than later.
The energy shortage has rattled financial markets because investors are worried about the fallout. Government bond yields have risen and stock markets wobbled. However, we continue to believe this type of inflation spike, rather than becoming a self-fulfilling spiral, will eventually settle back down as the global economy readjusts from the disruption caused by the Covid-19 virus.
Although the pandemic continues to cast its shadow, many of us are eager to embrace life’s pleasures as cultural events open to visitors again. The latest feature in our For a richer life series covers the International Documentary Film Festival Amsterdam. Artistic Director Orwa Nyrabia explains the value of documentary filming and how the festival has evolved.
Higher energy prices are weighing down on the global economy at the moment, but the outlook remains positive

An energised market
COUNTERPOINT
SEPTEMBER 2021
Portfolio


MACRO
Inflation and bond yields (ongoing)
The outlook for investment returns remains positive, but we’re adjusting our exposures to reflect the evolving environment
Dialling down risk
Quintet portfolio


MEDICAL
Covid-19 vaccine (ongoing)
MONETARY
Fed tapering (Q4)
FISCAL US
infrastructure spending (H2)
FISCAL EU
infrastructure (Q4)
MACRO
Restocking inventories (not yet)
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 stocks will outperform low-yielding US investment grade bonds at this still relatively early stage of the business cycle. 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 November 2021
While the Delta variant remains an issue, Covid-19 vaccination programmes are ongoing, reopening is happening, inflation is tentatively stabilising while bond yields are now beginning to rise as central banks are on the move
WHAT TO LOOK
OUT FOR
Monitor

The economy is adjusting to reopening after the pandemic shock, but the general direction of travel is one of continued growth
Not quite so fast
Investment focus


Swipe to see the full graph
Source: Quintet, Bloomberg
Higher inflation today doesn’t mean that it will remain high tomorrow
Living in the moment
Top chart

Bill Street
Group Chief Investment Officer

The recent increase in oil and gas prices is pushing up the rate of inflation but it’s likely to settle back down

When the wind blows
Welcome
