Infographic - GIV - The fine line between confidence and Euphoria

Friday 07 May 2021

Research / Market

 

Markets are displaying enthusiasm on the back of  global recovery hopes, driven by the US and China and by the reopening of economies.

On the other hand, certain market segments  appear to be over-exuberant (technology sector).  Investors should maintain their risk-on stance,  but stay vigilant of asymmetric risks and monitor  future data.

INVESTMENT THEMES

REMAIN CAUTIOUS BUT FLEXIBLE ON DURATION¹ 

A part of the repricing of US Treasuries²  has already happened. Looking ahead, improving economic backdrop and inflation  expectations, along with potential support  from investor demand, call for a prudent  stance on government bonds.

PLAY THE ROTATIONS IN RISK ASSETS

2021 will be a year of earnings recovery  and investors should play this through cyclical³ and value⁴ equities (in regions  such as Europe, and Japan), without increasing the overall risk.  However, stock selection is essential.

BENEFIT FROM DIVERGENCES IN THE RECOVERY WAVE

High yield⁵ credit, especially Euro high  yield, is back in focus as prospects for the corporate sector are improving amidst an economic rebound. But selection is crucial as some sectors are displaying  signs of recovery vs the more vulnerable  sectors, such as Retail.

PICK-OUT THE JEWELS IN EMERGING MARKETS

While Emerging Market debt continues  to offer higher yield, equities, particularly  in Asia, may offer the opportunity to play  cyclicality. Investors should remain  selective as there is a high scope for differentiation among countries.

                                                                                                                                                                                                                              

LOOK TO THE FUTURE WITH AN ACTIVE BALANCED STANCE

Most of the good news around vaccination and economic  recovery is already priced-in by markets but the next  upside surge could come from a corporate earnings  recovery. Accordingly, investors should remain  constructive on risk assets, particularly cyclical and value  equities (Japan, Europe), and stay active but not increase  risk at the moment. In addition, this is the time to explore  relative value within and across asset classes such as  credit and Emerging Market fixed income. On the central  bank front, it is crucial to monitor inflation movement and  ensure investors are not blindsided by policy mistakes. Overall, staying well-diversified and agile is important

¹Duration: Expressed in number of years, the duration is the present calculation, of the average lifetime, of all the interest and capital flows relating to a portfolio

²US Treasuries: Long-term bonds issued by the US Treasury on behalf of and for the purpose of financing the American Government.

³Cyclical: Investment whose price movements follow that of the wider economy.

⁴Value: Stocks considered under priced given the performance of the underlying company

⁵High Yield: Bonds with a lower credit rating but which therefore offer a higher return.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  For illustrative purposes only. This publication is provided for information purpose only and does not constitute and offer, commitment, advice or recommendation to make a purchase of securities or enter into any such transaction. It may not be distributed to anyone or in any jurisdiction that would make such distribution unlawful. The information contained herein has been obtained from sources believed to be reliable but has not been independently verified, although Amundi and its affiliated companies believe it to be fair and not misleading. Such information is solely indicative and may be subject to modification from time to time. Any opinion or view expressed herein is subject to change without notice. We do not accept any liability whatsoever whether direct or indirect that may arise from the use of information contained in this publication.

This publication is not intended for residents or citizens of the United States of America or to any «U.S. Persons», as this term is defined in SEC Regulation S under the U.S. Securities Act of 1933. The information contained in this publication is deemed accurate as of 5 May 2021. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.