Market Talk

The European Union took further steps towards political and fiscal union last week as the European Commission put forward a rescue programme even more ambitious than the original Merkel-Macron proposal. European assets also benefited from the continuing economic recovery while growth stocks took a backseat. In our latest podcast, Ewout van Schaick explains how the European proposal represents a significant step forward on the path to European unity, in stark contrast with ongoing divisions elsewhere. “A unified Europe, a strong and large Europe, is the only way that we can deal with these increased political tensions.”

Two news stories have dominated markets in the past week: one of unity, as Germany and France reached a solution on the European budget situation; the other of discord, as China’s implementation of security regulations in Hong Kong threatens to spark renewed upheaval and lead to escalation in US-China trade tensions. On balance, markets have traded up as the German-French accord hinted at a more robust fiscal and political union for the Eurozone, but the news from China has led to another wave of uncertainty. In our latest podcast, Ewout van Schaick explains how the German-French proposal helps to level the European playing field and why, despite the ongoing Chinese tensions, we’re sanguine on the prospects for emerging markets.

Technology stocks have held up much better than other sectors throughout the coronavirus crisis, underpinned by skyrocketing usage of digital communications tools. However, with many tech stocks even offering a positive year-to-date return, valuations are now pricing in a V-shaped recovery and may not withstand a prolonged downturn. In our latest podcast, Ewout van Schaick, Head of Multi Asset, and Hans Slob, senior investment analyst, discuss which tech segments currently look appealing from a defensive perspective and which crisis-induced trends might be here to stay. (Transcript available below.)

Equity markets have rebounded strongly in recent weeks, with indices now at or close to pre-crisis levels. Markets are placing a great deal of faith in policy support and positive virus developments, and the recent earnings season was much less downbeat than expected. Still, market positivity also creates vulnerabilities, as any negative news flow around the virus or as economies reopen could throw the recovery off course. In our latest podcast, Ewout van Schaick, Head of Multi Asset, explains our scenarios for the economic recovery and what we see as the most pressing questions as we move towards normalisation.

Information moves markets, even when it’s in the form of a tweet. By analysing news flow and social media posts to calculate consumer, business and investor sentiment, we can better assess where markets are headed. Sentiment data is more timely than corporate and macroeconomic data, making it particularly useful during periods of extreme volatility. In our latest podcast instalment, our CIO Valentijn van Nieuwenhuijzen and Richard Peterson, CEO of MarketPsych, explore the benefits and challenges of measuring and using sentiment data. They explain how they expect the use of sentiment data to evolve and discuss the need for human creativity alongside machine learning inputs. “It is man and machine together,” says Van Nieuwenhuijzen, “that provide the most robust decision-making and therefore the best investment results.”

Emerging market equities are looking more attractive than European stocks, according to Ewout van Schaick, head of Multi Asset. Much of the EM equity index consists of technology companies, which are either the beneficiaries of the coronavirus crisis or more resilient to it. “That makes emerging market equities a lot more attractive than those in Europe, where technology accounts for only 6% of the benchmark,” Van Schaick says in our latest podcast. Overall investor positioning in EM is relatively low and valuations are still at a 20% discount to the rest of the world.

Being green in normal times when markets are stable – OK. But doesn’t investor focus shift in a time of crisis? According to Bram Bos, Lead Portfolio Manager Green Bonds, the answer is a resounding no. Although green bonds also suffered in the corona-induced market volatility, clients seem to be holding on to their bonds and in some cases increasing allocations. Corporate green bonds have also outperformed their traditional peers during the market turmoil. Bos explains why, after a hiatus in issuance as a result of the crisis, he expects corporate and sovereign issuers to return to the market and why some of the corona-induced increase in government spending could find its way into green bonds. “After all, the next crisis could be a climate crisis.”

Financial markets may be overly confident about the positive medical news on the coronavirus and the strong monetary and fiscal support from policymakers, according to Ewout van Schaick, head of Multi Asset. “There is a sizeable risk that the opening up of the economy will be much slower than lot of people think right now.” He still sees the best invest-ment opportunities in corporate credit space. “Last week we saw again large double-digit numbers in investment grade spread tightening, and even bigger tightening in high yield spreads,” Van Schaick says in our latest podcast. “As long as the Fed and the ECB are there as major supporters of these markets, then we feel that is the place to be for an investor at the moment.”

European high yield bonds should have a bright future in the coming 12 months. The monetary and fiscal stimulus measures that were announced over the past few weeks are driving demand; the only problem is that there are hardly any assets left to buy. In our latest podcast instalment, Sjors Haverkamp, Lead Portfolio Manager European High Yield, explains why we foresee strong returns for the coming year and where we expect new opportunities to arise.

Markets will get the first readings on the coronavirus’s business impact as the first-quarter earnings season starts this week. Still, corporate results will reflect only a month of lockdown measures, and company guidance about the coming quarters will carry more weight, says Ewout van Schaick, head of Multi Asset. He prefers developed market corporate bonds over equities, particularly since the US Federal Reserve’s most recent expansion of its bond-buying programs. “As an investor in these uncertain times, you should focus on what you know rather than on what you don’t know,” Van Schaick says in our latest podcast. “It’s very difficult to know how severe the impact on corporate earnings will be, and to assess the impact on equities.”