Quarterly investment letter | 2nd quarter 2021
Here’s our summary of the markets
The world is reaching an inflection point in defeating the pandemic, resulting in a possible regime change in inflation, a steepening of the yield curve, equity sector rotation, and possibly a revival of commodity prices.
The United States is powering ahead, and its GDP growth will likely surprise on the upside with the latest USD1.9 trillion fiscal stimulus plan. The US is also ahead of Europe in terms of vaccine doses and defeating the pandemic. The question is: to what extent will US consumers spend excess savings.
According to Germany’s Finance Minister, the EU’s vaccination strategy is a “total nightmare”. Europe is still largely in lockdown and falling behind in defeating the pandemic. Consequently, the recovery is postponed to the summer.
China’s GDP is expected to grow by 8.4%. That said, its economic activity has been moderating lately due to weakening domestic demand. At the National People’s Congress, the government announced plans to boost domestic consumption and make the economy more self-reliant.
Conclusion: We see a favorable scenario over the next three to six months. However, we have rarely seen so many simultaneous fast-moving parts, which increases market volatility. The key question is how rising inflation will affect bond yields and investors’ market perception. In the end, all asset classes are leveraged to low bond yields. The outlook for low-yielding, long-duration bonds remain negative, and our preference is on credit risk. Within equities, growth stocks are at an inflection point – and cyclical, commodity, and value stocks have begun to shine again.
Don’t miss our complete 2nd quarter 2021 investment letter.
Previous 2021 quarterly investment letter: