Is the glass half full or half empty? Opinions are currently divided here. While on the one hand there is a warning about the difficult winter months, the optimists are already vaccinated in their thoughts and are returning to normal. You can read how we assess the situation in this issue of Finanzmarkt aktuell.
… will probably be the motto of this winter. Some of the vaccines can even be launched this year, but it will take much longer for the vaccine to be widely distributed. It is currently uncertain whether the European Medicines Agency (EMA) will decide on the approval of the vaccine this year. In Great Britain, China or the USA, people are in a bit of a hurry. Vaccines have already been approved here using the fast-track procedure or approval is to be decided this month. Anthony Fauci – the US counterpart to Lothar Wieler – announced a possible herd immunization until mid-2021. So at least until then it is necessary to hold out. In the industrialized part of the world in particular, significant restrictions should still be expected in the new year. Although the number of infections in Europe is now falling again, they are still at high levels. In this situation, easing measures seem clearly premature or run the risk of being quickly reversed.
In the USA, however, another comprehensive lockdown has so far been avoided, which is why the infection process is increasingly out of control. In many states, the hospitals are already at their capacity limits and the number of cases significantly exceeds the numbers from the first and second wave of infections. Since the economically strong regions are now also affected again, a second lockdown would result in harder cuts in the economic recovery. So although we still have a few difficult months ahead of us, there has recently been more positive news that gives us hope for a normalization in the middle of next year. Only then will the economy be able to fully develop its recovery momentum.
Emerging countries are starting to recover dynamically
The enormously successful fight against the Covid-19 pandemic in Asia gave the region a clear head start in the economic recovery movement. China in particular has already returned to pre-crisis levels in many areas and has also used the time to invest more in future-oriented issues. But emerging countries such as Brazil and India, which have been hard hit by the pandemic, have recently been able to deliver positive economic data. Where economists had long given a pessimistic outlook, the first rays of hope are now emerging. Industrial production in India, for example, is already growing again year-on-year, and the economy in Brazil is supported by strong consumption figures and government aid. The movement is also underpinned by positive company expectations for the coming months. On the other hand, this year has also produced many problem children. For example, Argentina, Zambia and Ecuador could no longer service their national debts and had to initiate restructuring measures. The economies in Mexico and Russia are still not really gaining momentum. In many places, the fiscal policy leeway does not allow large-scale economic stimulus packages that could help households and companies in the pandemic. Overall, however, the worst appears to be over in the emerging markets. Despite the lack of aid measures, economists are anticipating high growth rates for the coming year 2021, which will then return the economies to their original growth path in 2022. However, the pace of recovery will differ significantly within the group of emerging markets. The overriding risks, such as the renewed sharp increase in the number of infections or a lack of tailwind due to a faltering recovery in the global economy, are still there, but are becoming less and less significant in the light of the ongoing new news about vaccines. Looking ahead to the coming year, we are therefore positive about corporate bonds and emerging market equities. These will be able to benefit from the dynamic economic recovery and still have comparatively attractive risk premiums and price potential.
The capital market looks optimistically into the next year
As already described in the last issue, the vaccine news at the beginning of November led to a dynamic catching-up movement of the stocks that have had a particularly difficult time during the crisis. This sector rotation, away from previous winners to losers in the pandemic, was historic. After a good chunk of the previous underperformance since the beginning of the crisis has been made up within less than a month, the movement has now ebbed again. For a further continuation of the rally, facts are needed, for example in the form of nationwide vaccinations for the population. This pattern also continues among bonds.
High-yield bonds in particular saw inflows of funds and risk premiums shrink. Corporate bonds with a higher credit rating were also able to benefit from a decline in risk premiums, which are now even below their historical average of 1.29 percent. At the same time, however, the fundamental risks are still heightened. Companies are more heavily indebted than at the beginning of the pandemic and are structurally exposed to greater risks in an uncertain economic environment. For investors, the question remains whether they are still adequately remunerated for the risk they have taken. Investors should therefore continue to be very selective. We still see opportunities in the convertible bonds segment, which with an attractive risk / return profile opens up the possibility of participating in the development of the stock market. In the case of stocks, we are positioning ourselves more aggressively in order to participate in the recovery of cyclical stocks, but at the same time we are sticking to the winners of the crisis. In addition, we supplement our equity mandates with small caps that should generate added value in the course of a cyclical recovery. We still pay attention to the quality of the business models and are not tempted to buy supposedly cheap stocks that will ultimately emerge from the pandemic weakened. We also continue to expect relative strength in the US equity market based solely on technology stocks.