Coffee Break

Investment convictions

Core scenario

• In our central scenario we consider that growth is impacted by temporary factors and we maintain the view that we are in the middle of the reopening, not of the economic recovery cycle. Reflation plays have a more attractive risk-reward and should benefit from a reduction in risk perception. The expected continuation in the rise of real interest rates is the key trigger for a possible outperformance of the value part of the market.
• We believe that this context remains positive for ex-US equities, value stocks and assets (banks) and short duration.
• In the US, growth and inflation data should stay at elevated levels and the Fed is expected to announce a tapering before year-end.
• In Europe, monetary dynamics are still positive and should stay accommodative. Fiscal dynamic should remain positive with the roll out of the NGEU and the upcoming coalition talks in Germany could ultimately help the EU risk premium decline.
• In emerging markets, we assume that Latin America should further benefit from the catch up in the reopening trade. On the long run, China should benefit from growing domestic demand.

Risks

• Fed and ECB tapering will be another focus in the coming weeks. Inflation is still widely seen as temporary, which should allow central banks to control their communication and avoid any policy mistake.
• Regulatory tightening in China has triggered a correction in July / August on Chinese stocks and on stocks exposed to China. Policy easing should help find some support and allow some catch up in Q4.
• Coronavirus. Countries and regions that are less well vaccinated are the more at risk. But the current situation does not stop the reopening of the economies in developed countries. With fall arriving, this reopening should go better than last year.

Recent actions in the asset allocation strategy

Recent days have been marked by an upward move on bond yields as we witnessed 13 central bank hikes in September, the highest in over a decade. The US 10Y yield has hit 1.56% last Wednesday. As Fed Chair Jerome Powell sounded a little bit more hawkish, we expect higher yield’s impact on equities to accelerate going forward. On the political side, the result of the general elections in Germany implies continuity in a moderate financial and economic policy as a likely three-party coalition should gather around a centrist programme. The country will remain an anchor of stability in the euro zone as both extreme parties on the left and on the right have been losing votes.

Cross asset strategy

We expect a more sideways phase with a possible increase in volatility before finding a clearer direction and a continuation of the reflationary environment. We are neutral equities and underweight bonds.

1. We have exposure to assets related to the post-COVID rebound/recovery
   Neutral equities, underweight bonds, preference for ex-US equities especially Emerging Markets through Latin America equities and China A onshore stocks.
   Underweight government bonds, keeping a short duration. We focus on the source of the highest carry, i.e. emerging debt. We stay neutral US and European investment grade credit. We have a currency exposure to the NOK.
2. Positive stance on Small caps
3. Positive stance on Global Banks
4. Positive stance on long term growth thematics
   Environmental solutions, digitization and healthcare are our strongest thematic convictions. Tech and Innovation themes, as well as Oncology and Biotech sectors reveal high growth potential.