House View Q4, 2021

Macroeconomy

In our baseline scenario, we expect the global economy to continue its recovery in the last quarter of 2021. We believe that central banks will gradually start to withdraw asset purchases and inflationary pressures will be transitory. That said, we expect neither the FED nor the ECB to hike interest rates over until the end of 2022. We forecast 2021 GDP growth of 6.1% for the US, 6.4% for the UK, 5.1% for the EU, and 7.9% for China.

 

Conventional Portfolio: Equities VS Bonds

We maintain our overweighed position on equities relative to bonds for the long run, while – in the short term – holding call options on volatility, due to supply disruptions and slowing growth momentum.

For equities, over the medium term, we believe that Japanese stocks have room to outperform other developed markets. All in all, we remain broadly positive on equities while expecting a slower pace of expansion.

On the contrary, we remain bearish on fixed income since rising bond yields add pressure to bond prices and have an overall negative performance. From this asset class, the only exception is China, where the Chinese 10-year Government Bonds offer an attractive 3%.

 

Commodities

The gradual reopening of the global economy, with strong demand and more stable consumer spending, will prop up commodity prices. With shortages in labor and low inventories, we believe that oil prices will continue to rise, heading towards 85/bbl during Q4 while closing lower at 75/bbl by the end of the year. In addition, we see the natural gas rally to continue exceeding 6.5 due to supply bottlenecks. Europe’s bigger suppliers, Russia, and Norway have current inventories 11% below the five-year average.

 

Currencies

After the German elections and the depreciation of the EUR, we believe that the currency has room to generate returns over the medium term, hence we favor the EUR relative to the USD and the NOK. For the latter, raising the US debt ceiling is likely to add negative pressure to the USD. We see a slower economic expansion supported by a weaker USD and stronger cyclical currencies.

Over the medium term, the Chinese Central Bank is likely to ease further due to Evergrande in China, as a result, we expect a depreciation of CNH. At the same time, rising gas prices will support gas exporters (Russia) and the RUB. Therefore, we like a put option to CNH/RUB with spot at 10.4 and a stop loss at 11.6.

 

Equity Indexes: positioning for the Q4

• US: financial, insurance, energy, real estate, technology, infrastructure, mid-cap
• EU: health care, ESG, infrastructure, financials
• Japan: industrials, consumer discretionary, materials
• Sell and neutral exposure: Chinese stocks

 

Commodities:

• Oil: exceeding 85/bbl during Q4, while our estimate remains 75 by the end of 2021
• Natural Gas: exceeding 6.8 per MMBtu

 

Bonds:

• Asian High Yield
• Chinese Government Bonds: 10-year offering 3%
• US Treasury 10%: 2% until the end of 2021

 

Forex:

• Buy: EUR/USD
• Buy: EUR/NOK
• Sell: CNH/RUB

 

INDICES we like:

• S&P 500
• REIT
• MSCI US
• MSCI All Country World Index
• PAVE Global Infrastructure
• iShares Global Clean Energy ETF
• iShares Healthcare Innovation UCITS ETF

 

Longer Term Themes: We like

• Agriculture, Food
• Automation, Robotics
• Cybersecurity