Quarterly investment letter | 3rd quarter 2020
Our view on the market at a glance *
- In the short-term, the global economy will recover back to decent levels. Governments and central banks are unlikely to withdraw their stimulus measures after they have gone “all in”.
- In the medium-term, the combined support from governments and central banks will give rise to zombie companies and weigh on productivity and GDP growth. Japanification is a long-term risk.
- The US economy is recovering better than anticipated and visibility has improved. That said, the good news seems to be already largely priced into equities.
- Europe has suspended its state aid and fiscal rules to support the economic bloc. With the “Next Generation EU” recovery fund, the Euro-zone is about to move one step closer to a fiscal union.
- China has suspended economic growth targets and its support measures are more focused on the government controlled production side. The Chinese recovery will be positive for industrial metals.
- Conclusion: In fixed income, European government bonds have lost their “safe-haven” status. Buy US Treasuries for diversification reasons and as a hedge. Default rates will rise but policy support of all kinds will put a cap on them. Short dated non-cyclical high yield bonds, European senior loans and Asian bonds in general are our asset classes of choice. In equities, momentum has become more important than fundamentals and the economic rebound is already largely priced in. Expect equity markets to trade range bound or entering a bubble.
Have a look into our complete Quarterly Investment Letter here.