Coronavirus - The worst is behind us
Most participants felt that the worst of the pandemic was behind us, and that governments were not likely to implement complete lockdowns again. A few expect countries with greater economic openness and fewer sector dependencies, especially China and the US, to lead the economic recovery ahead of Europe and EM. LATAM is particularly vulnerable, and EM will be more broadly under pressure from the pandemic and oil. Other participants agreed that parts of Europe may lag, but that Germany and France may rebound strongly.
US presidential elections - Two candidates, two economic policies
The participants shared the consensus view that the US dollar would weaken. Although Democrats and the Republicans are both committed to additional monetary and fiscal support, the participants expect their policies to look very different. They agreed that with a democratic win the large corporate tax cuts implemented under the current administration would likely be reversed, a wealth tax would be become more likely, while spending by low-income households could increase on income tax cuts. However, if the current presidency were to continue, the participants expect policies to mirror the last four years. Overall, the speakers agreed that there was still much uncertainty around the US elections and that flexibility and diversification in the portfolio may be the best protection against volatility.
Equity - A preference for US markets
Most speakers consider macro and sentiment to be the biggest drivers in the equity market currently, as fundamentals and valuations are not attractive. They remain bullish on liquidity and prefer exposure to the US, especially large caps, although there may be potential in small caps for thematic investing. They are overweight in China and with low exposure in Europe and the UK, because quality companies tend to have a high premium. Another participant prefers to focus on quality and considers active management key in this volatile environment, and exposure to technology themes is a focus.
Credit - Aim for quality
In credit, participants recommend focusing on the sectors which have proven more insulated from this crisis, such as utilities, telecom and pharmaceuticals, which are attractive in terms of both fundamentals and valuations. They also noted that central banks are strongly backstopping the US and European credit markets. Another speaker remains constructive on credit, but has recently reduced the magnitude of their overweight position.