Markets are caught between near-term pessimism and a brighter outlook further ahead. In the short run, economies face further lockdowns as vaccine production hits bottlenecks, rollouts hit stumbling blocks and mutations raise concerns over vaccine efficacy.
While such developments would affect economic activity, vaccinations are progressing and government support measures remain in place, allowing for an optimistic longer-term view.
In the US, there are encouraging calls to “act big.” Even if the proposed USD 1.9 trillion package is watered down, the economy can expect a remarkable sum of government stimulus. This will leave the US ahead of Europe, in terms of both fiscal support and the scope for a post-pandemic recovery.
While expectations of a US jumpstart might push Treasury yields higher, we believe it will take considerable economic progress this time before the Federal Reserve decides to raise interest rates.
We are positive on risky assets and given the current state of macroeconomic and political risk, we would add to positions on any weakness. We are long USD versus the euro since we expect the US to outperform the eurozone economically. We are short eurozone large-cap equity.
For more on our asset allocation views and our positioning, watch the video and read the latest report
Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.
The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.