Economy and financial markets


While most economists and market strategists expect an economic recovery in 2021, investors should maintain a balanced (diversified) portfolio allocation to protect against any negative surprises. We prefer cyclical values and are increasingly shifting our focus to the emerging markets and China, which should benefit from an expected depreciation of the US dollar. The next few months will likely see major market fluctuations, so it’s important to keep on strategy and avoid panic selling.

We are all eager for a better outlook in 2021 and an end to the Covid-19 pandemic. Now that some coronavirus vaccines have been approved, we are confident that there is light at the end of the tunnel, even though our optimism has been somewhat tempered by the emergence of new strains. The consensus among economists is that 2021 will be a year of economic recovery. Seldom before have their economic forecasts been so bright, and many market strategists are expecting 2021 to be an outstanding year for equities.

The theme of the year is TINA (there is no alternative) – in other words, the only way forward is with equities. Faced with such an overwhelming consensus, my instinct is to remain cautious, even though our strategies have long favoured real assets, such as shares. We must not underestimate the potential for disappointment if there is too much consensus. For this reason, our approach to the coming year continues to focus on maintaining a well-balanced (diversified) investment strategy.

Our economists also expect a strong global economic recovery after this year's recession. Our main scenario of a post-corona global upswing is based on low or even negative interest rate policies and weak inflation forecasts, which should further boost the valuations of equity investments and other real assets. However, there is still plenty of uncertainty: our entire scenario hinges on the roll-out of vaccination programmes, and we cannot exclude the risk of a virus mutation that is not covered by the standard vaccine. But given what we currently know, it would be possible to adapt the vaccines to any mutated variant within around six weeks. So we remain confident and maintain our positioning on real assets, such as equities, corporate bonds and gold. We prefer cyclical values and are increasingly shifting our focus to the emerging markets and China, which should benefit from an expected depreciation of the US dollar. Nevertheless, the next few months will continue to see major market fluctuations, so it's important to keep on strategy and avoid panic selling.

This pandemic has created the “Covid-19 generation” – a cohort that has not experienced any wars and just a short recession, which was overcome with significant state intervention. This has influenced their priorities and increased their appetite for structural change. We can divide this into temporary and permanent changes. I expect that the travel freeze, city exodus and work-fromhome trend will be rather temporary in nature and that we will gradually return to our old habits. The sustainability movement, growing awareness about our health, and technological progress, which is supported by all states worldwide, will continue to shape our future. For us as investors, this creates attractive opportunities and also new risks, which we will take into account in our portfolios.

I hope you enjoy reading this report, and I wish you all the best for the new year.

Giovanni Leonardo 

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