What to expect from the markets in the second half of 2021 in this context of a desynchronized recovery?

Since the start of 2021, in a post-pandemic context with the start of large-scale vaccination, the economies have started to recover, however out of sync. Europe and Japan still have a negative output gap in 2022 as the United States overheats. What could be the consequences of this situation? Does inflation in the United States pose an overall risk for the markets? How to take advantage of the diversification opportunities offered by the current desynchronization and the divergence between the different economic blocs?

Macroeconomic outlook – Raphaël Gallardo, Chief Economist

After the asymmetric shock of the pandemic, the speed of vaccination and the degree of budgetary normalization in 2021-2022 constitute new factors of desynchronization between the economic cycles of the large regions.

In the short term, fiscal stimulus and forced savings accumulated during the pandemic imply a vigorous rebound in household and business demand in 2021. This creates transitory inflationary pressures due to insufficient supply in semiconductors, transport (road and sea), construction materials and certain metals linked to the energy transition (copper, cobalt, etc.). In the United States, the problem is aggravated by labor shortages (drop in immigration, more generous unemployment benefits).

The pandemic has accelerated the major trends of Digitization, De-globalization and Decarbonization; the first is a positive supply shock, but the other two are negative supply shocks likely to generate a more lasting rebound in inflation.

« The rebound in US inflation should be more persistent than the Federal Reserve anticipates due to upward pressure on rents, wages and the cost of health insurance. “

“While the rest of the world pursues fiscal stimulus and monetizes its public debts, China is trying to stabilize its total domestic debt ratio. This implies strong upward pressure on its currency. Beijing’s attempts to curb the yuan’s rise risk reigniting trade tensions with the United States. “

Investment strategy – Kevin Thozet, Member of the Investment Committee

Kevin ThozetIt is still possible to find value in the equity markets, by:

  • Balanced investments between companies which benefit from long-term growth engines (abundant in the United States and China) and companies which will benefit from the economic recovery (which can be found more particularly in Europe).
  • Caution with regard to the most cyclical segments. The optimism of consensus appears to be largely reflected in the positioning of the market.

Opportunities can be found in the credit markets:

  • But, given the very low bond yields, we have to think outside the box.
  • And look for them in so-called emerging countries or in business sectors that are a little more exposed or with more complex investment theses to analyze.

On the foreign exchange markets:

  • We have low dollar exposure due to a less favorable growth differential in the United States and growing opposing forces.
  • The prices of raw materials have been very positive, however certain currencies of countries exporting these basic products have stagnated. So we expose ourselves to it – selectively.

Active management of the risk of a rate hike is essential, because:

  • The different economic trajectories also induce differentiated monetary policies.
  • In the US, we can expect future releases to better reflect the effects of the recovery. Which should push US interest rates and inflation expectations higher.

“In the Euro zone, the markets have anticipated monetary tightening within 2 years and less of the ECB’s asset purchases. It seems premature to us. Inflation is at this stage mainly an American phenomenon. Also, European rates could stall. “

“2021 is an exceptional year for the equity markets, but with the return to some form of normality, earnings growth for global equity indices should return to its long-term trend as early as next year. “

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