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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 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

Counterpoint October 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.

GEOPOLITICS US-China tensions (ongoing)

MACRO Input shortages (ongoing)

MACRO 
Reopening plans (ongoing)

FISCAL EU
Recovery fund (Q3)

MONETARY Global central banks (ongoing)

FISCAL US Infrastructure spending (H2)

MEDICAL Covid-19 vaccine (ongoing)

MACRO Inflation and bond yields (ongoing)

Although the pace of global economic growth has probably passed its peak, we’re maintaining our risk-on positioning by overweighting selected equity and credit asset classes over higher-quality bonds. There are three reasons:

  • Growth is likely to remain higher than its long-term average, which should support decent returns for risky assets.
  • Although central banks are considering when to scale back their support, monetary policy is still very easy for now, and likely to change only gradually.
  • We still see support from momentum and corporate earnings – two indicators we are monitoring closely at this stage of the cycle.

Quintet portfolio

Weighing the growth outlook

We’re confident that the economic environment can continue to support returns from risky asset classes over the medium term

N
EQUITIES
FIXED INCOME
ALTERNATIVES
FX
4.0
0.0
-4.0
0.0

Click an asset class to show the sub-asset classes

The asset allocation vector

Economic data appears to confirm our base case of solid activity for the remainder of this year and the first half of 2022

After picking up rapidly when the lockdowns receded, it’s almost inevitable that the pace of economic growth would fall back. Although activity is moderating, it’s still above average, pointing to ongoing expansion. We expect this moderation to be gradual for two reasons. First, some of the causes are transitory (the Delta variant and supply bottlenecks). Second, we don’t expect monetary and fiscal policies to tighten abruptly in the near term.

As the global economy moves further away from the pandemic-related recession, it will have to learn to live with less support from the central banks’ monetary policies and governments’ fiscal stimulus measures that have propelled it forward. All eyes are on the Fed, which is likely to announce later this year that it will begin to taper its asset purchase programme. Treasury bond yields might feel some upward pressure when this happens.

The US Federal Reserve (Fed) announced last year that it would allow inflation to run hotter than normal in order to support the labour market and the broader economy. The unemployment rate has been falling steadily and inflation may have already peaked, which means the need to stimulate is fading. Although the US created fewer jobs than expected recently, we continue to believe the Fed will begin to taper its asset purchase programme later this year.

Top chart

Getting back to work

US businesses continue to generate new jobs for American workers and this trend is likely to continue for some time

Source: Quintet, Bureau of Labor Statistics, Federal Reserve

Bill Street
Group Chief Investment Officer

What a difference a year makes. Just 12 months ago many countries were beginning to struggle with a surge of the coronavirus and lockdown measures were imminent. The outlook for this autumn and winter is more positive now that the link between Covid-19 infections and hospitalisation appears to have weakened. We’re learning how to live with the virus, and any measures to slow the spread are unlikely to involve shutting down large parts of our economy.

Septembers are for fresh starts, new beginnings and renewed purpose. Celebrated journalist Lucy Kellaway knows this all too well. A few years ago, she changed course and became a trainee teacher at the age of 58. We talked to Lucy as the new school year starts, to find out why she has a spring in her step this September, and you can read the interview here.

Now that the holiday season is over, we’re getting back to work with a renewed sense of purpose and enthusiasm

A fresh start

Welcome

Scroll down

COUNTERPOINT OCTOBER 2021

That normal feeling

The global economy is settling down into a pace of growth that’s more consistent with its long-term average, and appears to be on solid foundations

COUNTERPOINT OCTOBER 2021

That normal feeling

The global economy is settling down into a pace of growth that’s more consistent with its long-term average, and appears to be on solid foundations

What a difference a year makes. Just 12 months ago many countries were beginning to struggle with a surge of the coronavirus and lockdown measures were imminent. The outlook for this autumn and winter is more positive now that the link between Covid-19 infections and hospitalisation appears to have weakened. We’re learning how to live with the virus, and any measures to slow the spread are unlikely to involve shutting down large parts of our economy.

Septembers are for fresh starts, new beginnings and renewed purpose. Celebrated journalist Lucy Kellaway knows this all too well. A few years ago, she changed course and became a trainee teacher at the age of 58. We talked to Lucy as the new school year starts, to find out why she has a spring in her step this September, and you can read the interview here.

The US Federal Reserve (Fed) announced last year that it would allow inflation to run hotter than normal in order to support the labour market and the broader economy. The unemployment rate has been falling steadily and inflation may have already peaked, which means the need to stimulate is fading. Although the US created fewer jobs than expected recently, we continue to believe the Fed will begin to taper its asset purchase programme later this year.

After picking up rapidly when the lockdowns receded, it’s almost inevitable that the pace of economic growth would fall back. Although activity is moderating, it’s still above average, pointing to ongoing expansion. We expect this moderation to be gradual for two reasons. First, some of the causes are transitory (the Delta variant and supply bottlenecks). Second, we don’t expect monetary and fiscal policies to tighten abruptly in the near term.

As the global economy moves further away from the pandemic-related recession, it will have to learn to live with less support from the central banks’ monetary policies and governments’ fiscal stimulus measures that have propelled it forward. All eyes are on the Fed, which is likely to announce later this year that it will begin to taper its asset purchase programme. Treasury bond yields might feel some upward pressure when this happens.

Economic data appears to confirm our base case of solid activity for the remainder of this year and the first half of 2022

Balancing the risks
Although the recovery could suffer some setbacks along the way, we’re confident that the global economy will be resilient and continue to expand. There’s also the potential for pent-up demand to come through more strongly than expected, leading to periods of even stronger growth. China’s regulatory tightening is a potential headwind, but it’s mostly a China-specific factor at this stage rather than a global one.

Covid-19 remains a risk although the rate of new infections has stabilised. Reopening and increases in mobility are the dominant trends in most regions. Vaccination rates are high around the world, with those countries that were slow to start their programmes catching up. While the impact of virus variants looks manageable and strict lockdowns are less likely, more cautious consumers and workers could translate into slower spending and additional supply bottlenecks.

Although the pace of global economic growth has probably passed its peak, we’re maintaining our risk-on positioning by overweighting selected equity and credit asset classes over higher-quality bonds. There are three reasons:

  • Growth is likely to remain higher than its long-term average, which should support decent returns for risky assets.
  • Although central banks are considering when to scale back their support, monetary policy is still very easy for now, and likely to change only gradually.
  • We still see support from momentum and corporate earnings – two indicators we are monitoring closely at this stage of the cycle.

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 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

Welcome

A fresh start

Now that the holiday season is over, we’re getting back to work with a renewed sense of purpose and enthusiasm

Bill Street
Group Chief Investment Officer

Top chart

Getting back to work

US businesses continue to generate new jobs for American workers and this trend is likely to continue for some time

Source: Quintet, Bureau of Labor Statistics, Federal Reserve

Swipe to see the full graph

Investment focus

More light than shade

Global economic conditions are returning to a more normal state after the shock of the pandemic, and on balance the outlook is constructive

Quintet portfolio

Weighing the growth outlook

We’re confident that the economic environment can continue to support returns from risky asset classes over the medium term

Monitor

WHAT TO LOOK
OUT FOR

While the Delta variant remains a key issue, Covid-19 vaccination programmes are ongoing, reopening is happening, policy easing continues, inflation is tentatively stabilising while bond yields have stopped declining

Counterpoint October 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

More on our views

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.

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

Global Equities / Eurozone government bonds
As the business cycle progresses supportive factors for equities stay in place, including growth in global corporate earnings, market momentum and  monetary and fiscal support.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. A weaker US dollar and rising oil prices would be likely drivers of 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.

MACRO 
Reopening plans (ongoing)

FISCAL EU
Recovery fund (Q3)

FISCAL US Infrastructure spending (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

MACRO
Inflation and bond yields (ongoing)

GEOPOLITICS
US-China tensions (ongoing)

MACRO
Input shortages (ongoing)

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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