House Views - November 2021

THE BUMPY RECOVERY CONTINUES

We are maintaining our scenario of a solid economic recovery and transitory inflation
Growth is expected to remain robust in the developed economies, particularly due to favourable monetary policy and financial conditions and high savings levels. Inflation will continue to surpass central bank targets but is likely to ease once temporary factors are behind us. The central banks are expected to normalise their policies only gradually. Although certain sources of tension have eased recently (the Evergrande situation has been managed reassuringly and the debt ceiling was raised in the United States), this economic recovery is likely to remain bumpy as its strength may be affected by a number of different risks, including persistent friction in production and supply chains, a sharper slowdown in China, uncertainties over the other major economies (vaccination delays, zero-Covid policies and the inflation risk) as well as budget uncertainties in the United States.

In a context of still high risks, we are maintaining our conservative allocation through a Neutral position on the equity markets.
However, we remain Overweight the European equity markets, which continue to offer attractive catch-up potential, in an environment that remains underpinned by abundant liquidity. We continue to expect long-term interest rates to gradually increase, and as such are maintaining our Underweight to the bond markets. Uncertainty in the emerging economies has prompted us to move to Neutral on sovereign bonds in these markets, and we are back to Neutral on European high yield bonds

Seeking alternative performance and protection from potential instability
We are still Overweight the “alternative” asset class, which could benefit from ongoing abundant liquidity and provide attractive opportunities in terms of returns. Moreover, in order to protect ourselves against market volatility, we are continuing to Overweight the dollar and gold in our allocation.

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