Quarterly investment letter | 4th quarter 2020
Our view on the market at a glance
- Over the next 3-6 months we expect global economic growth to be reasonable, based on the outlook for a viable vaccine, central banks’ ultra-loose monetary policy and governments’ fiscal stimulus measures reaching over USD 13 trillion or 15% of global GDP.
- To maintain growth momentum in the US, it will be key for Congress to bridge the gap to a “post-COVID-19 economy” with another fiscal stimulus bill. The bill must pass before the election in November 2020.
- The European fiscal response has been adequate, but the European Central Bank (ECB) needs to do more to support the extra fiscal stimulus. Otherwise the ECB’s inflation target of 2% loses further credibility.
- China is the only major economy likely to achieve positive GDP growth in 2020 and the up-swing is confirmed. With the 100th anniversary of the Chinese Communist Party next year, Beijing is unlikely to allow growth to relapse.
- Conclusion: Central banks’ monetary policy and governments’ fiscal stimulus measures remain a tailwind for global equities and fixed income, while the whole yield curve will stay depressed. To achieve a reasonable return, investors will either need to downsize their return expectations or increase their allocations to higher risk assets and more risky bond segments. This will lead to a momentum and psychology driven market, while valuations take a backseat. Until year-end, investors should expect spikes in volatility and larger swings in asset prices. The tolerance for losses is particularly small for investors with a negative year-to-date performance.
Have a look into our complete Quarterly investment letter here.