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Monthly Investment Outlook

Monthly Investment Outlook

We publish a Monthly Investment Outlook that highlights our convictions on equities and bonds, as well as recent asset allocation changes.


Summary

  • MONTHLY INVESTMENT OUTLOOK - Looking ahead to a brave new world
  • GLOBAL TACTICAL ASSET ALLOCATION - Repositioning portfolios for a brave new world
  • UBP ECONOMIC OUTLOOK - Eurozone facing a double dip recession in Q4-20
  • UBP ECONOMIC OUTLOOK - A brighter 2021 economic outlook as vaccines arrive
  • GLOBAL BONDS - Seeking opportunities to redeploy credit risk
  • GLOBAL EQUITIES - Boosted by hope of a quick return to normality
  • RECENT VIEW CHANGES - Pivoting from asymmetry to directional strategies

  • Global equities had their strongest month of 2020 rallying on the back of the coming prospects for vaccine deployment and reduced risks of rising corporate taxes in the US with the incoming Biden administration.
  • This investor optimism has come amidst renewed national lockdowns in Europe and local lockdowns in the United States. In spite of this, mobility trends in Europe have stabilised as have new US jobless claims filings indicating economies are adapting to this new world. This comes against the backdrop of outright economic expansion in China which has broadened to include the consumer.
  • With the sooner than anticipated and better than expected vaccine announcements and with economies adapting to this latest infection/lockdown cycle, many of the risks that concerned us entering November have begun to dissipate. As a result, we pivoted our portfolios in late-November to accommodate the prospect of a 2021 cyclical rebound.
  • We have eased our portfolio protection strategies in futures and options. We have also closed our long-held underweight in European equities which added significant value for portfolios having lagged our preferred US equity exposure by 21% year-to-date.
  • Though this cyclical recovery dynamic will be a helpful tailwind for a number of value-oriented sectors, we suggest instead a selective approach in the value space, focusing on higher quality value names unencumbered by some of the secular pressures present in segments like traditional energy or even banking. High quality mining companies and select industrial names offer tactical opportunities.
  • We pair this tactical opportunity in cyclicals with continued long-cycle transformation stories beyond the technology and healthcare narratives of 2020. We expect climate change, digital finance/fintech, and China’s domestic transformation to be durable and investible growth storylines in the decade ahead.
  • With zero/near-zero interest rates around the developed world, we believe emerging and Asia credit are anchors to income-oriented portfolios looking into 2021. With the dollar weakening story of 2020 set to continue in 2021, investors can also enhance returns via FX markets in the year ahead. For USD investors, EUR strength can augment the attractive carry offered in the European bank hybrid market. Similarly, Chinese sovereign bonds offer a 3% yield combined with currency appreciation potential for attractive total returns for investors.
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