Marcuard Heritage: Quarterly investment letter – 1st quarter 2021
Our view on the market at a glance
- Investors seem to be living in the best of all worlds. No central bank or government wants to remove economic support too quickly and monetary policy will remain very stimulative.
- Joe Biden won the US presidency and besides the House, the Democrats have a chance to even get control of the Senate. The economic recovery is intact and consumer spending will underpin growth next year as household balance sheets are healthy and the unemployment rate has fallen.
- Europe is lagging the US and market consensus expects the Eurozone to play catch-up and possibly even outperform. Europe typically benefits the most during a manufacturing upswing, especially when China’s industrial production growth is increasing.
- China is the first economy leaving the pandemic behind and its recovery is at an advanced stage. Xi Jinping is unlikely to tolerate any kind of instability ahead of the 100th anniversary of the Communist Party of China in October 2021.
- Conclusion: We have a positive scenario over the next 3-6 months. The risks to our view are the rollout of the vaccines to take longer and the possibility of the virus mutating. Hence, investors should have contingency plans ready. If everything falls into place, equities and credit will outperform long duration bonds. Equity multiples are high on an absolute basis but attractive relative to bond valuations. Positive operating leverage and rising profits should lead to higher asset prices. Inflation remains a distant threat as both the output and unemployment gap will remain meaningful in 2021. That said, year-over-year numbers will temporarily jump as numbers were extremely depressed at the nadir of the recession.
Please have a look into our complete Quarterly investment letter here