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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 August 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 September 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)

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MACRO 
Reopening plans (ongoing)

FISCAL EU
recovery fund (Q3)

MONETARY Global central banks (ongoing)

FISCAL US infrastructure spending (H2)

MEDICAL Covid-19 vaccine (ongoing)

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MACRO Inflation and bond yields (ongoing)

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The recent correction in Chinese assets left global markets largely unscathed. Global equity prices continued to rise, supported by another strong corporate earnings season, persistently low yields and solid economic data. We expect this supportive backdrop to persist and keep our risk-on positioning.

Global assets, especially US equities, continued to perform well over the past month, but the correction in Chinese and Asian markets has opened select investment opportunities. While we think it is too early to ‘buy the dip’ in Chinese equities, we find the attractiveness of Asian high yield bonds has increased, as average spreads widened to the widest levels since late-2020.

While single weaker issuers, especially within the important Chinese property sector, can still lead to phases of volatility, we think a too dire outcome is currently priced into Asian high yield bonds. We therefore have increased out tactical overweight.

Quintet portfolio

Positioned for the recovery

In response to the correction in Chinese and Asian markets we have increased our tactical overweight in Asian high yield over US investment grade bonds

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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

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Some economic indicators have cooled and risks are more balanced, but overall our analysis indicates that further expansion is likely

Restrictions in both in the US and throughout Europe continue to be eased, increasing mobility to almost pre-pandemic levels for most people. The UK economy has now seen most of its major restrictions lifted, making it a test case for the rest of the world. Although cases are now rising, hospital admissions have been falling and are a fraction of what they were earlier in the pandemic.

As the pace of vaccination growth eventually slows, many countries are now looking at offering incentives to encourage people to get vaccinated. Even though local setbacks are possible if infections rise further, this vaccine push should help lift the remaining restrictions to give people and firms the same levels of freedom they had before the pandemic. However, while the vaccines are clearly working, the highly transmissible Delta variant is fuelling a surge in cases, so there is still some way to go before we can put the pandemic behind us.

As the Delta variant continues to spread, new cases are on the rise globally. However, the occupation of intensive care units (ICUs) and fatalities have clearly decoupled from the latest infection trend, mainly due to the successful rollout of the vaccine in North America, Europe and China. Going forward, extra vaccines will need to be shipped to emerging markets to avoid derailing the economic recovery. Fortunately, we see some signs that vaccine shipment is gaining momentum. People, large and small firms, and governments have all adapted and are now handling the virus in more effective ways. This suggests that the economic impact of this fourth virus wave is likely to be more manageable and a lesser market risk.

Top chart

Vaccine rollout is reducing ICU numbers

The vaccine rollout has significantly reduced the number of people in intensive care despite the rise of the Delta variant

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Note: ICU: Intensive Care Unit; New infections and ICU per 100 thousand people; Fatalities per one million people
Source: Quintet, Our World in Data; ICU occupation only for Europe and US

7-day rolling average

Bill Street
Group Chief Investment Officer

autograph

As the vaccine rollout turns to younger age groups, the journey back to normality continues with the further easing of restrictions. Thanks to the success of the vaccination programme, things are finally opening up and the release of savings built up over the lockdowns is set to lead to a spending boom. People are enjoying the opportunity to finally spend some of their lockdown savings on holidays, entertainment and in shops and restaurants. The back-to-school shopping season is also expected to provide a well-needed boost to the high street as shoppers seek to make up for lost time.

Understandably, some investors worry that we could see a surge in infections which could slow the economic rebound if we are not careful. As we enter autumn, experts are warning infections could rise further now that rules have been relaxed. Case numbers still remain quite high and there is the potential for extra pick-up now that children are returning to school and workers are going back to offices. The good news is that, despite the continuing spread of the Delta variant, vaccination rates are now higher and people and companies have adapted to cope with the virus risks. The recovery remains on track and we are optimistic about future growth.

Bill street image

After more than a year of restrictions, people are enjoying the opportunity to go on holiday, which signals a spending boom

Summer spending boom

Welcome

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COUNTERPOINT SEPTEMBER 2021

Variants of delta

Vaccines are mitigating the impact of the Delta variant on the economy

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COUNTERPOINT
SEPTEMBER 2021

Variants of delta

Logo

Vaccines are mitigating the impact of the Delta variant on the economy

As the vaccine rollout turns to younger age groups, the journey back to normality continues with the further easing of restrictions. Thanks to the success of the vaccination programme, things are finally opening up and the release of savings built up over the lockdowns is set to lead to a spending boom. People are enjoying the opportunity to finally spend some of their lockdown savings on holidays, entertainment and in shops and restaurants. The back-to-school shopping season is also expected to provide a well-needed boost to the high street as shoppers seek to make up for lost time.

Understandably, some investors worry that we could see a surge in infections which could slow the economic rebound if we are not careful. As we enter autumn, experts are warning infections could rise further now that rules have been relaxed. Case numbers still remain quite high and there is the potential for extra pick-up now that children are returning to school and workers are going back to offices. The good news is that, despite the continuing spread of the Delta variant, vaccination rates are now higher and people and companies have adapted to cope with the virus risks. The recovery remains on track and we are optimistic about future growth.

As the Delta variant continues to spread, new cases are on the rise globally. However, the occupation of intensive care units (ICUs) and fatalities have clearly decoupled from the latest infection trend, mainly due to the successful rollout of the vaccine in North America, Europe and China. Going forward, extra vaccines will need to be shipped to emerging markets to avoid derailing the economic recovery. Fortunately, we see some signs that vaccine shipment is gaining momentum. People, large and small firms, and governments have all adapted and are now handling the virus in more effective ways. This suggests that the economic impact of this fourth virus wave is likely to be more manageable and a lesser market risk.

middle_banner_mobile.jpg

Restrictions in both in the US and throughout Europe continue to be eased, increasing mobility to almost pre-pandemic levels for most people. The UK economy has now seen most of its major restrictions lifted, making it a test case for the rest of the world. Although cases are now rising, hospital admissions have been falling and are a fraction of what they were earlier in the pandemic.

As the pace of vaccination growth eventually slows, many countries are now looking at offering incentives to encourage people to get vaccinated. Even though local setbacks are possible if infections rise further, this vaccine push should help lift the remaining restrictions to give people and firms the same levels of freedom they had before the pandemic. However, while the vaccines are clearly working, the highly transmissible Delta variant is fuelling a surge in cases, so there is still some way to go before we can put the pandemic behind us.

New image

Some economic indicators have cooled and risks are more balanced, but overall our analysis indicates that further expansion is likely

Economic recovery continues, but more slowly
There was a surge in economic activity over the spring and summer, reflecting the opening of the economy and pent-up demand from earlier lockdowns. However, following the economic rebound there are now signs that the recovery in the world’s major economies is decelerating somewhat. The Delta variant risks slowing the pace of economic growth, while economies are now normalising towards pre-pandemic levels. Although the balance of risks is no longer skewed towards the upside and is now symmetric, our cycle indicator still points towards expansion.

While we do expect some ‘speedbumps’ along the way with occasional virus waves, vaccines and system adaptability should mitigate any effects on the economy. Therefore, we would describe these risks as moderate. Given the strong jobs market and potential inflation risks, we expect the Federal Reserve to announce later in the year that it will taper its asset purchases, which should put some upward pressure on long-term bond yields.

The recent correction in Chinese assets left global markets largely unscathed. Global equity prices continued to rise, supported by another strong corporate earnings season, persistently low yields and solid economic data. We expect this supportive backdrop to persist and keep our risk-on positioning.

Global assets, especially US equities, continued to perform well over the past month, but the correction in Chinese and Asian markets has opened select investment opportunities. While we think it is too early to ‘buy the dip’ in Chinese equities, we find the attractiveness of Asian high yield bonds has increased, as average spreads widened to the widest levels since late-2020.

While single weaker issuers, especially within the important Chinese property sector, can still lead to phases of volatility, we think a too dire outcome is currently priced into Asian high yield bonds. We therefore have increased out tactical overweight.

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 20 August 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

AAT new - Start

Welcome

Summer spending boom

icon

After more than a year of restrictions, people are enjoying the opportunity to go on holiday, which signals a spending boom

Bill street image autograph

Bill Street
Group Chief Investment Officer

icon

Top chart

Vaccine rollout is reducing ICU numbers

The vaccine rollout has significantly reduced the number of people in intensive care despite the rise of the Delta variant

Note: ICU: Intensive Care Unit; New infections and ICU per 100 thousand people; Fatalities per one million people
Source: Quintet, Our World in Data; ICU occupation only for Europe and US

Swipe to see the full graph

mobile-chart
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Investment focus

Vaccine versus virus

While there are concerns the rise of the Delta variant could slow the economic recovery, vaccination is providing an offset

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Quintet portfolio

Positioned for the recovery

In response to the correction in Chinese and Asian markets we have increased our tactical overweight in Asian high yield over US investment grade bonds

icon

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 picking up temporarily while bond yields have stopped declining

Outlook is more certain than last month

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Outlook is less certain than last month

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Counterpoint September 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.

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MACRO 
Reopening plans (ongoing)

FISCAL EU
recovery fund (Q3)

FISCAL US
infrastructure spending (H2)

MONETARY
Global central banks (ongoing)

MEDICAL
Covid-19 vaccine (ongoing)

New image (copy)

MACRO
Inflation and bond yields (ongoing)

New image (copy)
down.png (copy)

TRADE
Geopolitical tensions (ongoing)

MACRO
Input shortages (ongoing)

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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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