Coffee Break 1/11/2021


  • The US dominated the news flow. First, Congress confirmed President-elect Joe Biden’s victory after pro-Trump rioters stormed the US Capitol trying to block the certification proceedings.
  • Democrats will have control of the Senate. Unexpected for a long-term red State like Georgia, but the running Democrat senators won over the two incumbent GOP senators.
  • The US job report showed a fall of 140K non-farm payrolls. Business restrictions particularly hit restaurant jobs while many other sectors showed gains, suggesting contained economic pain.
  • The euro zone Manufacturing PMI was revised lower to 55.2 last December, from an initial estimate of 55.5. Meanwhile, the Business Climate Indicator rose to -0.41, the highest since March 2020.



  • The vaccine rollout needs to speed up and vaccine doses may need to be stretched. Until then, getting the virus and its mutation in check will remain a key focus for investors.
  • As the UK settles into its third national lockdown, investors will look at housebuilders reporting. Their continued strength depends heavily on the UK avoiding a double-dip recession.
  • Q4 2020 earnings season is getting started. A few US financials names will kick-off the process. Full results for the December quarter are due later this month.
  • As Angela Merkel will not run for a fifth term in the Autumn election, the Christian Democrats (CDU) are to pick a new leader on Saturday. The winner would be a credible candidate to lead Germany.


  • Core scenario
    • In our central scenario, we take into account the not-as-smooth-as-expected vaccine rollout, the few side effects and the unfortunate virus mutation. The current circumstances do not call into question the mechanical rebound of growth followed by a transition supported by central banks and governments towards a sustainable recovery in the Western hemisphere. H1 2021 will see a strong growth in corporate profit.
    • In the US, current president Trump finally condemned the mayhem unleashed by his supporters in the US Capitol and admitted that he will no longer be president in less than 2 weeks. Political uncertainty will persist until president-elect Joe Biden takes residence in the White House, but the prospect of additional stimulus after the Democratic sweep improves the investment horizon.
    • In Europe, our central scenario assumes the end of social distancing in 2021 and a swift implementation of the Next Generation EU plan.
    • Our main convictions remain as follows:
      • The economy is driven by the virus. Markets are driven by the vaccine.
      • Although the post-Brexit trade deal was passed into law, its implementation and the definition of UK´s ties with Europe remains a challenging unknown.
      • We have an exposure to recovery-related assets: European and US banks, US small caps relative to the US market, UK mid-caps and GBP.
      • Simultaneously, our core portfolio remains geared towards the most resilient themes and countries while keeping protections on the European equity market.
  • Market views
    • The progress toward a Covid-19 vaccine prompted investors to rotate from the “stay-at-home” stocks to companies that benefit from the economic recovery, i.e. cyclical and value sectors. The rotation is likely to continue into H1 2021.
    • From a longer-term perspective, ultra-accommodative fiscal and monetary policies and the vaccine becoming a reality should support the transition from a mechanical rebound to a sustainable recovery of the economy.
  • Risks
    • In the short term:
      • The coronavirus pandemic is the main obstacle to the economic recovery. The vaccine rollout appears underwhelming so far and the recent mutation of the virus could lead to increased efforts to reach herd immunity later this year.
      • US presidential transition. Joe Biden will be inaugurated on 20 January 2021. Prospects of more government debt push investors away from Treasuries, as the curve steepens with the ten-year yield floating higher.
    • In the long term:
      • Political uncertainty: The social divide is widening between losers and winners of the health crisis.


2021 is starting under better auspices witness the large inflows in December and the most recent stretched but stabilizing sentiment indicators. The 2021 recovery will be accompanied by a catch-up in growth and a rebound in corporate earnings. We are overweight equities but with a protective derivative strategy on European equities as a setback cannot be excluded at the current juncture. We keep a positive assessment for European and Emerging equities, value sectors, such as banks, and US and UK small and mid-caps. There is also a positive assessment for the long-term winners of the sanitary crisis: Technology, Health care, and Green Deal beneficiaries, among others. Riskier bonds, such as convertible bonds, and high-carry bonds, such as emerging debt, enhance the strategy. 2021 will require continuous active management and agility.



  • 2021 shall be a recovery year and as we anticipate a strong first half, we prefer equities – less expensive than bonds despite high valuation.
    • We are overweight EMU and UK equities. We remain overall neutral Europe ex-EMU. European equities will benefit from the turn in market drivers vs. pandemic.
    • We remain overweight emerging markets equities and have a preference for the Chinese equity market. China emerges stronger, especially as the US are going through such tumultuous changes, as we enter 2021.
    • We are neutral US equities, with a preference for US banks and small and mid-caps.
    • We are also neutral Japanese equities.
    • We keep key convictions in various thematic investments. Global Technology, Oncology and Biotech sectors prove relatively resilient in the current context and reveal high growth potential driven by innovation and pricing power.
    • We believe that climate and environmental themes enable exposure to key solutions for a cleaner future and will continue to gain in importance as infrastructure plans are becoming green, from China to Europe, and also the US under a Biden administration.
  • We are underweight bonds, keeping a short duration, but highly diversified as the current environment is also creating opportunities in the bond market, including in convertible bonds.
    • We are underweight core government bonds and overweight European peripheral government bonds.
    • In a multi-asset portfolio, we focus on the source of the highest carry, i.e. emerging debt. We are neutral US and European investment grade credit.
    • We hold GBP, having reached some of its lowest levels since the Brexit referendum. We hold NOK, which appeared attractive during the crisis, as well as gold and the JPY, which are risk mitigators. We remain cautious on the US dollar.