The Globe Eurizon's Investment View - 3 February 2021
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The Globe Eurizon’s Investment View 3 February 2021
Scenario
Macro Economy
ME • The opening months of 2021 will play host to lingering restrictive measures, monetary and fiscal stimulus measures, and the ongoing
rollout of the vaccination campaign.
• In the second half of the year, the effectiveness will be assessed of the vaccinations in allowing national economies to reopen first
The evolution of the pandemic is still the main focus theme for
internally, and then externally as well.
investors, as the vaccination campaign has begun.
In Europe, the administration of the vaccines has got off to a slow start, Asset Allocation
and restrictive measures on business activity are still in place.
Economic growth incurred a setback in the closing quarter of 2020,
and will presumably stay weak in the opening months of 2021 as
AA • The moderately pro-cyclical profile of investment choices has been confirmed, in reflection of expectations for an
economic recovery of the global economy.
well. • More in detail, we have confirmed the underweighting of core country government bonds, the overweighting of the
On the political front, the European Union countries are defining their spread markets. and a neutral positioning on stocks, the dynamics of which seem stretched in the near term.
individual investment plans for the use of the funds made available under
the NGEU/Recovery Fund. However, these funds will only be activated in
the second half of the year, while new supportive measures are needed Fixed Income
now, considering the stubbornly high virus infection rate, and the
sluggish pace of the vaccination campaign.
FI • Long-term interest rates in the US and Germany are at risk of climbing, as the global recovery consolidates. The
convergence of peripheral euro area government bonds is now almost complete.
• Interesting spreads are still being offered by High Yield and emerging country bonds, as also, to a lesser extent,
In the US, vaccinations are proceeding at a faster pace than in
by Investment Grade bonds.
Europe, and the restrictive measures are less stringent. The US
economic recovery is still on track to return to pre-Covid activity levels in
the third quarter of this year. The Biden administration is preparing a Equity
new, substantial fiscal stimulus package, the details of which will be
defined during the month of February. Investors are reassured by the fact
that US economic policy will be managed by Janet Yellen, former
E • Stock markets hold appeal in a medium-term perspective, considering the likely recovery of earnings in 2021, as
opposed to bond coupon flows reduced to zero.
Federal Reserve Chairwoman, and new US Treasury Secretary. • On a shorter horizon, the strong recovery from the lows hit in March 2020, and still rather high volatility, could slow
. the upswing.
Currencies
C • The US economy’s greater relative strength compared to the Eurozone has halted the decline of the dollar, observed almost throughput
2020. Positive view confirmed on emerging countries.
For professional investors only 3 February 2021 1
Investment View
The moderately pro-cyclical profile of investment choices has been confirmed, in reflection of expectations for an economic recovery, while taking
into account the slower than expected rollout of the vaccination campaigns, and a rather stretched stock market. The weight of the European
stock markets has been reduced to the advantage of the US; overall positioning on the stock markets confirmed Neutral. On the spread markets,
preference for emerging bonds reduced to the advantage of High Yield bonds. View on the US dollar restored to Neutral from Underweight.
ASSET CLASS VIEW
- = + Negative view on the duration of US, German, and quasi-core Eurozone government bonds.
Negative views confirmed on US, German, and quasi-core euro area government bonds.
NEGATIVE USA (-)
FIXED INCOME NEGATIVE GER (-)
Global Government NEGATIVE “QUASI CORE” (-)
- = + Neutral view on peripheral Eurozone government bonds.
Neutral view confirmed on non-core euro area government bonds
NEUTRAL PERIPHERALS (=)
Positive view on spread bonds.
Overweight view confirmed on the spread markets. Preference reduced for emerging bonds (pandemic still
FIXED INCOME - = + spreading at a strong pace) to the advantage of High Yield bonds (indirect support from central banks). The order
Credit Spreads of preference is now: (1) High Yield, (2) Emerging Markets, (3) Investment Grade.
POSITIVE (+)
Neutral view on stocks.
EQUITY - = + Neutral view confirmed on stocks, in light of a near-term movement that seems to be rather stretched; in terms of
geographical allocation, investment in the European markets is reduced, to the advantage of the US. The order of
NEUTRAL (=) preference is now: (1) Emerging markets and the US, (2) Japan, (3) Europe and Pacific excl. Japan.
Positive view on the emerging currencies, Neutral on the dollar.
Positive view confirmed on the emerging currencies, and view on the dollar restored to Neutral from Underweight.
CURRENCIES - = +
POSITIVE EMERGING CURRENCIES (+)
NEUTRAL DOLLAR (-)
For professional investors only 3 February 2021 4Asset Classes compared
• The stock markets got off to a positive start in 2021, but volatility rose back at the end of January. Long-term rates in the US increased in the
first half of the month. German rate curve stable; Italy spreads moderately wider due to the government crisis. High-Yield bonds outperformed
emerging bonds, affected by the rise of US rates. Dollar stronger against most of the other currencies, with the exception of the Renminbi.
Markets compared Local currency
15% 12,3% 12,3%
10% 7,8% 7,8%
5% 2,0% 2,0% 1,5% 1,5%
2,4% 2,4%
0,6% 0,6% 0,7% 0,7% 0,8% 0,8%
0,0% 0,0%
0%
-0,2% -0,2% -0,1% -0,1%
-0,7% -0,7% -0,9% -0,9% -0,9% -0,9%
-1,7% -1,7%
-5% -2,9% -2,9%
Govt USA 10y Govt GER 10y Govt ITA 10y Corp HY USA Corp HY EUR Govt Govt Equity USA Equity EURO Equity GER Equity ITA (All Equity JAP Equity Energy Industrial Precious
Emerging Emerging (S&P 500) (Eurosoxx) (Dax) Share) (Topix) Emerging Metals Metals
hard c. local c.
YTD 1M
Source: Eurizon Capital elaborations on Thomson Reuters Eikon data. Data as of 2 February 2021.
Markets compared Euro
14,2%14,2%
15%
8,9% 8,9%
10%
3,7% 3,7%
5% 2,3% 2,3% 2,3% 2,3%
1,5% 1,5% 1,6% 1,6%
0,7% 0,7% 0,8% 0,8% 0,9% 0,9% 0,8% 0,8%
0%
0,0% 0,0% -0,7% -0,7% -0,2% -0,2%
-0,9% -0,9% -1,2% -1,2%
-5%
Govt USA 10y Govt GER 10y Govt ITA 10y Corp HY USA Corp HY EURGovt Emerging Govt Emerging Equity USA Equity EURO Equity GER Equity ITA (All Equity JAP Equity Energy Industrial Precious
hard c. local c. (S&P 500) (Eurosoxx) (Dax) Share) (Topix) Emerging Metals Metals
YTD 1M
Source: Eurizon Capital elaborations on Thomson Reuters Eikon data. Data as of 2 February 2021.
For professional investors only 3 February 2021 3Theme of the month - 1
US rates:
• An important theme for investors is the movement
of long-term US government bond rates.
good increase vs. bad increase
• In the first half of January, anticipation ahead for
the opening of the vaccination campaign, and for a
new fiscal stimulus package, had pushed up 10Y
Treasury rates to 1.2%. The movement was
assessed positively by risk assets, as a signal
confirming the economic recovery, and supported USA: recessions and curve slopes USA: 10-year rates
rotation to the advantage of the sectors most
affected by the anti-Covid measures. (10Y – Fed Funds)
USA: recessioni e pendenza curva (10y - Fed Funds)
• In the second half of January, however, the uptrend 400 4.0
of rates was put on hold, mostly as a result of the prova
Test 2 2
slower than expected roll-out of the vaccination
300 prova
Test 1 1 3.5
200 3.0
campaign.
100 pre covid 2.5
• The movement of long-term US rates will play an 0 2.0
important signalling role throughout this year.
-100 1.5
• Stable rates, or on the decline, will point to a similar -200 USA 1.0
context to 2020, essentially driven by the United -300 0.5
States and by a handful of growth sectors. -400 0.0
• Rates on a gradual normalisation path to pre-Covid -500 GER -0.5
levels (2% area), on the other hand, may represent -600 -1.0
a good increase, validating positive expectations 53 57 61 65 69 73 77 81 85 89 93 97 01 05 09 13 17 21 11 12 13 14 15 16 17 18 19 20 21
and supporting geographical and sector rotation.
Source: Eurizon Capital elaborations on Thomson Reuters Eikon data Source: Eurizon Capital elaborations on Thomson Reuters Eikon data
• An excessive rise, on the other hand, for instance
to beyond pre-Covid levels, could be perceived as
damaging for the, therefore as a bad increase. The
two attempts at interest rate normalisation made
during the previous cycle (2013 and 2018/19) come
to mind, both halted by a surge in volatility on the
stock markets.
For professional investors only 3 February 2021 4Theme of the month - 2
• The vaccines are here. How long will it take them to The vaccine works (where available)
give us back the personal, social, and economic lives
we were used to? This is the question we are all
asking.
• After having closely monitored for a whole year the
statistics on new infections, equally strong focus is now
on the statistics referred to the vaccinated share of the
population. Israel is in the spotlight, as it got off to a
soaring start with the vaccines, has already
administered shots to half of its population, and will Anti-Covid: vaccines administered Italy vs. Israel: currently Covid-positive
provide important information on the effectiveness of (% of the population) (% of the population)
the vaccines.
(in % della popolazione) 1.4%
• Initial statistical evidence from Israel tells us that the Israel
Israele
1.3%
vaccines work, as every time a specific population UAE
Emirati Arabi 1.2%
group is vaccinated, the new infection rate literally UKUK
USA
USA Italy 1.1%
Italia
plunges in that group. 1.0%
Denmark
Danimarca 0.9%
• It is too soon as yet to tell when herd immunity will be Spain
Spagna 0.8%
achieved, and how long it will take to free the Italy 0.7%
Italia
population from the virus. This is because the effect on Canada Israele 0.6%
Canada Israel 0.5%
aggregate data is not yet visible. Germany
Germania 0.4%
France
Francia 0.3%
• Israel began its vaccination campaign at the height of China
Cina 0.2%
the third wave, therefore the “spontaneous” spreading Russia 0.1%
Russia
of the virus is still strong. The contagion rate (current 0.0%
Covid-positive share of the total population) is in line 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 01-feb-20 01-mag-20 01-ago-20 01-nov-20 01-feb-21
with Italy’s at present.
Source: Eurizon Capital elaborations on Thomson Reuters Eikon data Source: Eurizon Capital elaborations on Thomson Reuters Eikon data
• In the next few weeks, we will be able to assess if the
decline of the curve in Israel, thanks to the vaccines,
will have been sharper than in Italy, that is still counting
on restrictive measures to contain the pandemic.
• Therefore, we do not know how long it will take. But the
vaccines work. And we have the tools to monitor their
effects. Now we just have to wait for sufficient doses of
the vaccines to be delivered.
For professional investors only 3 February 2021 4FOR PROFESSIONAL INVESTORS ONLY This document was prepared by Eurizon Capital SGR S.p.A., a savings management company authorised to provide mutual management services by the Bank of Italy. The information provided and the opinions contained herein are based on sources that are considered reliable and given in good faith. However, no statement or guarantee, expressed or implied, is provided by Eurizon Capital SGR S.p.A. regarding the accuracy, completeness or correctness of this information and these opinions. The opinions, forecasts or estimates contained in this publication are expressed with exclusive reference to the date of drafting of the document, and there is no guarantee that future results or any other future event will be consistent with the opinions, forecasts or estimates contained herein. Any information contained in the document may, subsequent to the drafting of the document, be amended or updated by Eurizon Capital SGR S.p.A. without any obligation to communicate these amendments or updates. This document was not prepared for circulation to the public but is intended for information purposes only for the placement agents of savings products managed by Eurizon Capital SGR S.p.A. and Eurizon Capital S.A. who do not assume any liability for the personal or professional use of the information contained herein. Specifically, this publication is not, nor is intended to be, nor should it be interpreted as, a document offering sales or subscriptions, nor as a document to solicit requests for purchases or subscriptions of any type of financial instrument. No company belonging to the Intesa Sanpaolo Banking Group, or any of its directors, representatives or employees, will be liable in any way (through fault or otherwise) for any indirect damage that may be caused by using this document or its contents or in any case arising in relation to this documentation, and no liability regarding the above may therefore be attributed to these parties. This document is for the exclusive use of the parties to whom Eurizon Capital SGR S.p.A. provides it and may not be copied, re-distributed, directly or indirectly, to third parties, or published in whole or in part, for any reason, without the prior express approval in writing of Eurizon Capital SGR S.p.A. This document may not be distributed outside the Republic of Italy under any circumstances or made available to parties who are not resident in Italy. Specifically, and without limitation to the above, this document, including its copying, including partial copying, may not be received, sent or transmitted to the United States of America or to any resident of the United States of America, as defined in accordance with Regulation S regarding the U.S. Securities Act of 1933, nor to the United Kingdom, Luxembourg, or Japan. More information on financial market performance can be found on the www.eurizoncapital.com website. Eurizon Capital SGR S.p.A. Inserted in the Register of Asset Management Companies held by the Bank of Italy in accordance with Article 35 of Legislative Decree 58/98, under No. 3 in the Section of UCITS management companies, and under No. 2 in the Section of AIF management companies. Share capital: euro 99,000,000,00 entirely paid in. Registered office: Piazzetta Giordano dell'Amore, 3 – 20121 Milan - Italy - Tel. +39 02 8810.1 Tax code and Company Register log number: 04550250015. Company participating in the VAT Group Intesa Sanpaolo, VAT code 11991500015 (IT11991500015). Company subject to the management and coordination activities of Intesa Sanpaolo S.p.A., part of the Intesa Sanpaolo Banking Group, inserted in the Register of Banking Groups. Sole shareholder: Intesa Sanpaolo S.p.A. Member of the National Guarantee Fund.
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