Coffee Break 2/22/2021


  • Never underestimate the propensity of the American consumer to consume: January retail sales increased by 5.3%, fuelled by the $600 stimulus check distribution.
  • Global rollout of vaccines continues to gather speed: the US is accelerating the pace, Israel sees its number of hospitalizations decrease, Japan begins its rollout campaign and the EU has agreed to buy more BioNTech/Pfizer doses.
  • The new head of the Italian government, Mario Draghi, won the vote of confidence with a large majority in both chambers, as he promised to “fight the pandemic by all means”.
  • The British Pound gained traction, crossing 1.40 vs the US dollar for the first time since early-2018 on the back of the UK getting ahead of the rest of the world on its vaccination efforts.



  • In the UK, PM Johnson is expected to announce an easing of restrictions, the reopening of schools by mid-March and a new roadmap allowing the country to be broadly back-to-normal by July.
  • In the US, House Speaker Nancy Pelosi aims to pass its version of the $1.9Tn coronavirus relief bill by the end of the week as federal unemployment provisions will expire on March 14th.
  • EU leaders will gather for a European Council via videoconference, focusing on virus and vaccine. Italian PM Mario Draghi is expected to present his ideas on more fiscal integration.
  • The G20 finance ministers and central bank governors meeting will give an unique opportunity to the US duo Janet Yellen and Jerome Powell to demonstrate policy alignment on “going big”.


  • Core scenario
    • In our central scenario, we have taken into account the unfortunate virus mutation and the risk of vaccine inefficacy. 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 strong growth in corporate profit and financial markets will likely look favourably on the return of buybacks.
    • In the US, Joe Biden and his administration have the advantage of a unified Congress. Democrats are hoping to get the president’s $1.9Tn stimulus package through the House by the end of February and signed by the president by mid-March. The objective is to prevent an unemployment benefits cliff.
    • In Europe, our central scenario assumes a comeback to growth trend by end-2021 and a swift implementation of the Next Generation EU plan. Germany will elect a new Chancellor in the autumn ending thereby the Merkel era after 16 years. Italy has nipped a political crisis in the bud: Mario Draghi, a fervent pro-EU voice, has succeeded Giuseppe Conte as PM and will have around €200bn in recovery funds to spend. His arrival could be a support for more confidence in the euro zone’s periphery.
  • Market views
    • An economy still driven by the virus and the variants whereas markets are driven by the speed of vaccine rollout as well as strong expectations in improving corporate earnings.
    • Inflows in equities endures from both private and institutional investors.
    • We have exposure to recovery-related assets: Overweight equities vs. bonds, European and US banks, US and UK small and mid-caps and GBP, and exposure to commodities.
    • Simultaneously, our core portfolio remains geared towards the most resilient themes and countries while keeping protections on the European equity market.
  • Risks
    • The coronavirus pandemic is the main obstacle to 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. Besides, inefficacy of some vaccines on new variants could be a catalyst for a market slowdown.
    • Rising bond yields following the US political transition. Prospects of more government debt are pushing investors away from Treasuries, as the curve steepens, with the 10Y yield floating higher. Also, as the larger fiscal spending on infrastructure is being discounted, this is adding momentum to yields.
    • Geopolitical tensions: Tensions between China and the US could be back, with Taiwan crystallizing discord, although the Biden administration is managing diplomatic relations in a more consensual manner.
    • Political uncertainty: The social divide is widening between losers and winners of the health crisis.


2021 is a recovery year in terms of economic activity. The coronavirus has mutated and its variants might challenge the efficacy of the vaccines, but global sentiment remains confident in a stronger economy. We are overweight equities and hedge against possible short-term disappointments in the market. In terms of equities, we recently added to our UK equities exposure and in GBP. We remain overweight European and emerging markets equities and keep a neutral stance on US and Japanese equities. In terms of themes, we have exposures to value sectors, such as banks, 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 EU Green Deal beneficiaries, among others. Riskier bonds and an exposure to commodity trends enhance the strategy. 2021 will require continuous active management and agility.



  • 2021 shall be a recovery year and as we anticipate a strong rebound we prefer equities – less expensive than bonds despite high valuations.
    • We are overweight EMU and recently reinforced our overweight UK equities, in GBP. European equities will benefit from the turn in market drivers vs. pandemic. The successful vaccine rollout is a game changer for the UK economy as activity should pick up faster than on the continent. In addition, UK equity valuations still remain relatively attractive.
    • We remain overweight emerging markets equities and have a preference for the Chinese equity market. China emerges stronger and is keeping its lead.
    • 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.
    • In addition to GBP, we hold gold and the JPY, which are risk mitigators. We remain cautious on the US dollar.
    • We have an exposure to rising commodity prices, via a basket that also includes currencies, such as the AUD, the CAD and the NOK.

Our positioning