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Investment strategy 4rd quarter 2021

After going full throttle, the global economic recovery is now showing signs of fatigue, partly because supply chains, which have been hit by excessive demand, are feeling the strain in places. However, this slowdown should help to keep the lid on inflation, and growth is still robust enough to support the stock markets for a little while longer.

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A more moderate recovery

The global economic recovery has been particularly robust this year. But because economies around the world opened up again at almost exactly the same time, both supply chains and raw materials inventories have been squeezed considerably. The images of dozens of container ships waiting off the Californian coast to offload at the Long Beach port speak volumes. They are a symbol of the many bottlenecks that are starting to affect the global economy and a clear sign that growth is past its peak in industrialised countries. This will inevitably lead to a slowdown over the coming months. However, that’s good news when it comes to inflation, which has been rising in recent months and will prompt central banks to start normalising monetary policy.

Everything suggests, however, that growth in both the US and Europe will remain robust in 2022, with these economies expanding at a faster pace than in recent years. Meanwhile, emerging market countries may have to wait slightly longer for their economies to pick up again because of their more sluggish vaccination campaigns. China’s troubled real estate sector has been a source of some concern, although the difficulties it faces were probably caused by monetary policy being tightened a little too abruptly. China is likely to ease up now, by loosening lending conditions and slightly relaxing regulations affecting some sectors of the economy.

These shifts in both economic growth and monetary policies confirm that the stock market cycle has entered a new phase, which means that performance will be weaker and more volatile. We may soon have to start thinking about reducing risk in our portfolios. But for now, we are still overweight on equities – investor sentiment is currently very depressed and the last quarter of the year is usually buoyed by seasonal trends. What’s more, equities are still more appealing than bonds. The outlook for bonds has worsened owing to ongoing inflationary pressures and the tapering of asset repurchase programmes by central banks.

The change in monetary policies could also have an impact on exchange rates, with the currencies of countries where interest rates are most likely to rise faring the best. We think that pound sterling, the Norwegian krone and the US dollar will do well in this climate. Finally, we have slightly increased our exposure to commodities – which we expect to continue to suffer from supply chain problems – with equal weightings in industrial metals, energy and gold. Gold has not been lifted by the economic recovery but is still useful for diversification and hedging purposes.

Find the full analysis of the economic and market situation in our investment strategy as well as an update from our CIO, Daniel Varela, in this short video (in french) :

You can also watch the replay of our webinar on 13 April 2021 about our investment strategy for Q2 2021 (in french):

Do you appreciate our investment strategy and would you like to know more about our services? Contact us for a no-obligation consultation.

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