Coffee Break 1/25/2021


  • After a peaceful inauguration, Joe Biden promptly signed executive orders to boost the fight against several crises, including the pandemic, the economy and the climate. Markets reacted positively.
  • China confirmed its status as the only G20 economy to report positive growth in 2020. It expanded by 2.3% despite the trade spat with the US and the coronavirus pandemic.
  • The tighter COVID-19 restrictions took a toll on businesses as shown in the euro zone and UK Flash PMIs. The services sectors remain in contraction territory.
  • During the ECB press conference, president Christine Lagarde stated that the pandemic was still posing “serious risks” to the economy, as lockdowns were tightened and the vaccine rollout was slow.



  • The US Fed will publish its latest monetary policy decision. Although a rebound is expected later this year, Jerome Powell has vowed to “be careful not to exit too early” from policies supporting the economy.
  • Q4 earnings season gathers steam with 122 S&P 500 companies reporting. Markets shall benefit from the return of share buybacks by corporations.
  • Readings of Q4 GDP for key countries are expected and will highlight the resilience of some countries and sectors.
  • The US Senate has a packed schedule in the coming weeks as it confirms Joe Biden’s cabinet, discuss the new relief package and holds an impeachment trial of former President Donald Trump.


  • Core scenario
    • In our central scenario, we take into account the slower than expected vaccine rollout and the unfortunate virus mutation, which might delay herd immunity. The current circumstances do not call into question the mechanical rebound of growth followed by a transition supported by central banks and governments towards a sustainable recovery in the Western hemisphere. H1 2021 will see a strong growth in corporate profit and financial markets will likely see the return of buybacks positively.
    • In the US, president Joe Biden and his White House administration have the advantage of a unified Congress thanks to the outcome of the Senate elections in Georgia. The prospect of additional stimulus after the Democratic sweep improves the investment horizon. The first 100 days in office may also tell how ambitious Joe Biden will be on federal climate action.
    • In Europe, our central scenario assumes the end of social distancing in 2021 and a swift implementation of the Next Generation EU plan. Germany will elect a new Chancellor in the autumn ending thereby the Merkel era after 16 years.
    • Our main convictions remain as follows:
      • The economy is driven by the virus, and the mutations represent a blow. Markets are driven by the vaccine and the inoculations are the game changer.
      • We have an exposure to recovery-related assets: Overweight Equities vs. bonds, European and US banks, US small and mid-caps, UK mid-caps and GBP.
      • Simultaneously, our core portfolio remains geared towards the most resilient themes and countries while keeping protections on the European equity market.
  • Market views
    • The progress toward a COVID-19 vaccine prompted investors to rotate from the “stay-at-home” stocks to companies that benefit from the economic recovery, i.e. cyclical and value sectors. The rotation is likely to continue into H1 2021.
    • From a longer-term perspective, ultra-accommodative fiscal and monetary policies and the vaccine becoming a reality should support the transition from a mechanical rebound to a sustainable recovery of the economy.
  • Risks
    • The coronavirus pandemic is the main obstacle to the economic recovery. The vaccine rollout appears underwhelming so far and the recent mutation of the virus could lead to increased efforts to reach herd immunity later this year.
    • Rising bond yields following the US political transition. Joe Biden was inaugurated on 20 January 2021. Prospects of more government debt push investors away from Treasuries, as the curve steepens with the 10Y yield floating higher. Also, as the larger fiscal spending on infrastructure is being discounted, it adds momentum to yields.
    • Political uncertainty: The social divide is widening between losers and winners of the health crisis.


The 2021 recovery shall be accompanied by a catch-up in growth and a rebound in corporate earnings. We are overweight equities but with a protective derivative strategy on European equities to protect against potential short-term market volatility. We keep a positive assessment for European and Emerging equities, value sectors, such as banks, and US and UK small and mid-caps. There is also a positive assessment for the long-term winners of the sanitary crisis: Technology, Health care, and Green Deal beneficiaries, among others. Riskier bonds enhance the strategy. 2021 will require continuous active management and agility.



  • 2021 shall be a recovery year and as we anticipate a strong first half, we prefer equities – less expensive than bonds despite high valuation.
    • We are overweight EMU and UK equities. We remain overall neutral Europe ex-EMU. European equities will benefit from the turn in market drivers vs. pandemic.
    • We remain overweight emerging markets equities and have a preference for the Chinese equity market. China emerges stronger.
    • We are neutral US equities, with a preference for US banks and small and mid-caps.
    • We are also neutral Japanese equities.
    • We keep key convictions in various thematic investments. Global Technology, Oncology and Biotech sectors prove relatively resilient in the current context and reveal high growth potential driven by innovation and pricing power.
    • We believe that climate and environmental themes enable exposure to key solutions for a cleaner future and will continue to gain in importance as infrastructure plans are becoming green, from China to Europe, and also the US under a Biden administration.
  • We are underweight bonds, keeping a short duration, but highly diversified as the current environment is also creating opportunities in the bond market, including in convertible bonds.
    • We are underweight core government bonds and overweight European peripheral government bonds.
    • In a multi-asset portfolio, we focus on the source of the highest carry, i.e. emerging debt. We are neutral US and European investment grade credit.
    • We hold GBP, having reached some of its lowest levels since the Brexit referendum. We hold NOK, which appeared attractive during the crisis, as well as gold and the JPY, which are risk mitigators. We remain cautious on the US dollar.