Baloise Market View Current economic and financial market outlook - Baloise Asset Management
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Baloise Market View Current economic and financial market outlook
COVID-19 monitoring: case numbers
Nearly 80 million corona cases worldwide
Global Top 10: Coronavirus Case Numbers Global Top 10: New coronavirus cases
80'000'000 10-day average per 100,000 inhabitants
United States
India 160
United States
70'000'000 Brazil
India
Russia 140
60'000'000 France Brazil
United Kingdom 120 Russia
Turkey
50'000'000 France
Italy
100 Turkey
Spain
40'000'000 Argentina Italy
80
Rest of the World Spain
30'000'000
60 Argentina
United Kingdom
20'000'000
40
10'000'000
20
0
0
01-20 02-20 03-20 04-20 05-20 06-20 07-20 08-20 09-20 10-20 11-20 12-20
Sources: Baloise Asset Management, Bloomberg Finance L.P. Note: The sharp increase in the number of cases in Turkey is due to a change in the counting
method. For a long time, the government did not include asymptomatic cases in the statistics.
Baloise Market View, 22.12.2020 2COVID-19 monitoring: case numbers
Virus mutation causes case numbers in the UK to rise rapidly
7-day average of new coronavirus cases.
per 100,000 inhabitants
180
France
160
United Kingom
140
Germany
120
Italy
100
Belgium
80
Spain
60
Sweden
40
Switzerland
20
0
Jan Feb Mär Apr Mai Jun Jul Aug Sep Okt Nov Dez
Baloise Market View, 22.12.2020 3COVID-19 monitoring: vaccines
The global vaccination campaign begins, but who will get vaccinated?
Vaccination readiness
Studies suggest high efficacy of various COVID-19 % of respondents willing to be vaccinated against
vaccines (e.g., Pfizer/BioNtech, Moderna, and COVID-19 in 2021
AstraZeneca).
United Kingdom 65
Denmark 63
Australia 62
Vaccinations have already started at the beginning of South Korea 59
December in countries such as the UK, USA and Canada 53
Italy 52
Canada. In Switzerland, certain cantons will begin Netherlands 51
vaccination from December 23. For the euro area, Norway 51
vaccine is expected to be available from December 27. Japan 50
Germany 50
Singapore 49
Finland 47
According to surveys by the Imperial College London, Sweden 44
the willingness to be vaccinated in advanced Spain 41
France 35
economies* is 51% on average. While the clear majority
of Britons (65%) plan to be vaccinated in 2021, the 0 25 50 75
French are more skeptical. Only 35% are willing to be *Source: Survey conducted by Imperial College London in 15 countries at the end of
November. Included are Australia, Canada, Denmark, Finland, France, Germany, Italy,
vaccinated. Japan, the Netherlands, Norway, Singapore, South Korea, Spain, Sweden, and the
United Kingdom. The total sample consists of ~13,500 individuals.
Baloise Market View, 22.12.2020 4Financial Markets: Performance year-to-date
Stocks and oil retreat on concern over new coronavirus strain
FX Alternatives &
Equities Bonds Commodities
60%
40%
20%
0%
-20%
-40%
-60%
-80%
2020 High
2020 Low
per 21.12.2020
Performance ytd in local currency
Sources: Baloise Asset Management, Bloomberg Finance L.P.
Baloise Market View, 22.12.2020 5Macroeconomic environment: Summary
Travel bans due to new virus variant: the UK is isolated
Economy
COVID-19 Containment measures › The newest strain of the coronavirus, spreading rapidly in the UK, is
Lockdown Stringency Index potentially 70 percent more contagious than previously known variants. Many
(100 = nationwide lockdown, 0 = no measures) countries are stopping travel, and in some cases freight, between the UK and
South Africa, where a similar mutation has been discovered.
100 › Overall, covid restrictions have been sharply tightened since October and
90 are only slightly less restrictive than the spring measures (chart)
80 › The Brexit transition period ends on December 31, 2020, and there is no
70 new agreement yet (p.8).
60
50
Inflation
40 › Core inflation rates are currently well below target, especially in Europe, at
30 0.2% in the euro zone and -0.2% in Switzerland
20 › In the USA, core inflation (excluding energy and food prices) is 1.4%.
10
Monetary policy
0
20.02. 20.04. 20.06. 20.08. 20.10. 20.12. › The key U.S. interest rate is set at a target range of 0.00-0.25%. Until the
Germany
Deutschland Italien
economy recovers, bonds worth USD 120 billion are to be purchased every
Italy
Frankreich
France Grossbritannien month.
UK
USA
USA Spanien
Spain › The QE volume of the European Central Bank (ECB) to mitigate the
Schweiz
Switzerland pandemic was increased in December from EUR 1.35 trillion to EUR 1.85
Sources: Baloise Asset Management, Bloomberg Finance L.P., Blavatnik School of Government at the University
of Oxford
trillion. EUR 1.85 trillion to EUR 1.85 trillion and will now run until at least
Note: The index aggregates publicly available information on containment and closure the end of March 2022.
measures, such as school closures and movement restrictions. A distinction is made
between regional and nationwide measures.
› The Swiss National Bank (SNB) increased the threshold for negative
interest rate exemption in March to ease the burden on banks. The key
interest rate remains at -0.75%.
Baloise Market View, 22.12.2020 6Macroeconomic environment: Purchasing managers' indices
Slight recovery in the euro zone, but recent lockdowns likely to be a drag again
70 Eurozone 70 Germany
60 60
50 50
40 40
30 30
20 20
70
10
12-17 12-18 UK 12-19 12-20
10
12-17 12-18 12-19 12-20
60
70
50 USA 70 China
60 60
40
50 50
30
40 40
20
30 30
20
10 20
10 10
12-17 12-18 12-19 12-20 12-17 12-18 12-19 12-20
Total Manufacturing industry Services Sources: Baloise Asset Management, Bloomberg Finance L.P.
Baloise Market View, 22.12.2020 7Macroeconomic environment: Brexit
No agreement yet
Brexit Timeline 2020 Fishing rights are currently the focus of negotiations
between the EU and the UK
Brexit: The United Kingdom leaves the EU and the
31.01.2020 transition phase begins
From
Negotiations begin, but are interrupted because of the Context: Fisheries account
Context: Fisheries account for for about
approximately 0.1%
0.1% of the UK'sof
pandemic
March the
GDP.UK's GDP.
At the At the
same time,same
the UKtime, the UK government's
government's own 2018
own 2018found
analysis analysis
that found that thewill
the economy economy will be
be at least 2.6% at
The deadline for the extension of the transition period
least 2.6%
smaller smaller
in 15 years in 15 years
if there is noif agreement.
there is no agreement.
Without an
30.06.2020 expires Without
agreement,an agreement,
significantly significantly
higher tariffs higher tariffsat and
and chaos the
chaos at the borders
borders is to be expected.can be expected.
End of the transition phase
31.12.2020
New trade relationship between the UK and the EU In view of the mutated coronavirus, several states are
From
either under the new agreement or without an agreement. cutting travel and in some cases freight traffic with the
In the second case, the World Trade Organization (WTO)
01.01.2021
structures determine the new relationship, which would UK - a foretaste of a "no deal" Brexit
result in significantly higher tariffs and trade barriers.
Source: Baloise Asset Management
Baloise Market View, 22.12.2020 8Macroeconomic environment: Fiscal policy USA
Government agrees on new stimulus package
USA: Consumer sentiment After months of discussions, Democrats and
Index, Q1 1966 =100 Republicans agreed on another Corona aid package
110 worth $900 billion, about 4.25% of U.S. gross
domestic product.
100
Context: The majority of support measures
90
implemented under the first aid package will expire at
the end of the year. In addition, the economic
recovery has slowed down in recent months. More
80 stimulus was therefore urgently needed to offset some
the consequences of the pandemic for employees and
70 companies.
60
The bill was already largely expected by investors. The
positive market effect was therefore limited or rather
50
2006 2008 2010 2012 2014 2016 2018 2020
overshadowed by the worsening of the pandemic
Sources: Baloise Asset Management, Bloomberg Finance L.P.
situation.
Baloise Market View, 22.12.2020 9Macroeconomic environment: Switzerland
The USA accuses the SNB of currency manipulation
Switzerland: Top trading partners The U.S. Treasury declared Switzerland a currency
% of total foreign trade manipulator because of the Swiss National Bank's
25% (SNB) foreign exchange interventions.
20% Context: The SNB currently does not plan to change its
FX policy because, according to SNB head Thomas
15% Jordan, the SNB only intervenes in the foreign
exchange market to fulfill its mandate, i.e. to maintain
10% price stability. The SNB plans to convince Washington
with rational arguments.
5%
In a worst-case scenario, Switzerland would be
0%
2005 2010 2015 2019
threatened with tariffs on export products to the US,
which would be a major blow to foreign trade (chart on
China Germany the left). In our baseline scenario (p.11), however, we
France USA assume an economic recovery, which should ease the
United Kingdom
Sources: Baloise Asset Management, Eidgenössische Zollverwaltung Schweiz
upward pressure on the Swiss franc and thus give the
SNB more leeway again.
Baloise Market View, 22.12.2020 10Economic and financial market outlook
Our current scenarios for the coming 12 months
60% Base scenario 30% Negative scenario 10% Positive scenario
Global › Controllable, i.e., primarily regionally › R(t) rises significantly above 1, leading to an › Rapid containment of the pandemic thanks
pandemic
restricted outbreaks. intensified global pandemic wave to vaccines and social distancing
Assumptions
› Reproduction numbers R(t) close to or › Full lockdown in many places as in spring 2020 › Restrictions can be eased to a level that has
below 1 › Monetary and fiscal policy measures very little impact on overall economic activity
› Less restrictive containment measures increasingly less effective
than in spring 2020
Vaccine* Q2 2021 Q3 2021 Q1 2021
U-shape: Global recession bottomed out in mid- W-form: Renewed slump in growth in the next 6 V-shape: Strong and sustained recovery in the
Economy
2020, but recovery is sluggish and uneven across months leads to higher unemployment and high next 6 months due to catch-up effects
regions and industries (further defaults in harder- defaults in heavily affected sectors (consumption) and improved future prospects
hit industries) (higher investment)
Fed, ECB, SNB: Low inflation therefore still Fed, ECB, SNB: Deflation and strong QE expansion Fed, ECB, SNB: status quo until the end of 2020,
Monetary
politics
expansionary with readiness to expand QE and and extension until end of 2021, high FX followed by gradual QE throttling or lower FX
extend existing measures interventions by SNB due to CHF strength interventions by the SNB
› Interest rates move sideways from current › Interest rates reach new lows › Slight increase in long-term interest rates
› ›
Financial
Markets
levels Sharp rise in credit spreads Decline in credit spreads
› Normalization of credit spreads to pre-crisis › Renewed sell-off on the stock markets (losses › Stock markets continue to recover due to
levels >30% starting from current levels) generous liquidity situation and reach new
› Volatile stock market development, but with highs
upward trend
* Broad willingness to vaccinate and global availability.
Baloise Market View, 22.12.2020 11Baloise Market View: At a glance
Positioning against benchmark 3-6 Months 12 Months
Unattractive Attractive Unattractive Attractive
› Equities: The new coronavirus mutation is causing renewed uncertainty on the stock
markets. We therefore prefer a neutral equity allocation overall over three to six months. We
are hedging the risk of a major slump with derivatives. In our base scenario, we expect Equity ● ●
monetary and fiscal policy to remain expansionary in the medium term, which will cement the
low interest rate environment. Over twelve months, we therefore consider equities more
attractive than bonds. However, there is already a lot of upside priced in the equity market,
and the risk of setbacks is rising accordingly. We therefore prefer a neutral equity allocation
over 12 months in line with the strategy.
Fixed Income ● ●
› Bonds: We expect a prolonged low interest rate environment, which is why we consider
bonds to be unattractive overall. Spreads on investment-grade corporate bonds have fallen Corporate Bonds ● ●
sharply compared with the spring and now look less attractive to us. We therefore have a Government Bonds ● ●
neutral weighting on corporate bonds, and are cautious with regard to credit selection, as the
renewed intensification of the crisis is likely to lead to further rating downgrades and higher
default rates, especially in exposed sectors such as tourism and entertainment. Government
bonds remain unattractive due to very low interest rates and serve only as a stabilizer in case
Alternatives ● ●
of market dislocations.
› Alternative investments: In the alternative investments segment, attractive sources of return Real Estate ● ●
with relatively stable yields can be found, such as real estate. But here, too, selectivity is Senior Secured Loans ● ●
advisable. The current valuations of real estate funds, for example, leave little room for further
appreciation on average. However, the broad diversification between individual funds offers
opportunities, and overall, real estate funds remain an attractive source of risk due to the low
interest rate environment.
Cash ● ●
› Cash: In view of the volatile market environment, an increased liquidity ratio is indicated in the Sources: Baloise Asset Management as of 21.12.2020
short term despite negative interest rates. This should be reduced to neutral again in the
medium term when opportunities arise.
Baloise Market View, 22.12.2020 12Baloise Market View: In detail
Positioning against benchmark
3-6 Months 12 Months
Less More Less More
attractive attractive attractive attractive
Equity ● ● ◌
CHF ● ● ◌
EUR ● ● ◌
USD ◌ ● ● ◌
EmMa (USD) ● ● ◌
Fixed Income ● ●
Corporate Bonds
CHF ● ●
EUR ● ●
USD ● ●
Government Bonds CHF ● ●
EUR ● ●
USD ● ●
Alternative ● ●
Investments Real Estate Funds (CHF) ● ◌ ●
Equity (CHF) ◌ ● ● ◌
Senior Secured Loans USD ● ●
Cash CHF ● ◌ ●
Current view ●; previous month ◌
Sources: Baloise Asset Management as of 21.12.2020
Baloise Market View, 22.12.2020 13Baloise Asset Management
Aeschengraben 21
CH-4002 Basel
www.baloise-asset-management.com
Disclaimer:
Baloise Asset Management AG assumes no liability for the key figures and performance data used. The content of the publication contains opinions on market
developments and is for information purposes only and does not constitute investment advice. In particular, the information in no way constitutes a purchase
offer, an investment recommendation or a decision-making aid in legal, tax, economic or other matters. No liability is assumed for any losses or lost profits that
may arise from the use of the information.
Swiss Exchange Ltd, ("SIX Swiss Exchange") is the source of the Swiss Performance Index (SPI) and the Swiss Bond Index (SBI) and the data contained
therein. SIX Swiss Exchange was not involved in any way in the preparation of the information contained in this report. SIX Swiss Exchange makes no warranty
and disclaims all liability (whether arising from negligence or otherwise) with respect to the information contained in this Reporting - including, without limitation,
the accuracy, adequacy, correctness, completeness, timeliness and suitability for any purpose - and with respect to any errors, omissions or interruptions in the
SPI or SBI or its data. Any dissemination or transmission of the information originating from SIX Swiss Exchange is prohibited.
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