Hit is painful, but no change to asset mix

30 November 2021

In this week’s market Pulse, Chief Investment Officer Bernard Swords discusses how Covid and the new variant will be the main market focus in the short-term but stressed that it should not impact on asset positioning as good indications on economic performance continued last week.

  • Covid and the new variant will be the main focus in the short term. The reopening theme was already under pressure  as infections were rising rapidly in Europe and this gained further momentum on Friday with some very extreme moves in prices.
  • This should not impact too much to views on asset positioning. Policy makers will remain very supportive, which is important, and the experience with the Delta variant has been quite benign. Friday was a shortened trading day in the US but the equity market it saw the second largest daily inflow this year from retail investors.
  • The equity mix is the more pertinent question and the hit to the reopening trade is a painful journey. But it seems like a lot of bad news has been priced in now so without some firmer information it would be difficult to add value reacting to the developments.
  • Last week we were still getting good indications on economic performance. The US is still leading. High frequency indicators (restaurant bookings, passenger traffic, credit card sales etc) were all back to new highs for this year. In fact, it looks like we are back into an upgrade cycle for the US economy although that should not last too long. There were also indications that China would start more efforts to support the economy Premier Li called on the provinces to step up infrastructure spending and the PBoC said it would be doing more to stabilise the credit market. The global economy looked set to have a quite strong finish. This was feeding into earnings as well. We are still getting upgrades, even in the euro area where the outlook has become most clouded. Earnings growth for 2021 was pushed up 1% over the last week. The environment remained very equity friendly.
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