House Views - August 2021

Still a recovery scenario
The economic recovery continues, driven mainly by normalisation of activity and the continued strong support of monetary and fiscal
policies in developed economies. The evolution of the covid crisis - and in particular the rapid spread of the Delta variant - raises fears
of a resurgence of mobility and socialisation constraints that would halt this recovery. However, this risk would remain limited in
developed economies where vaccination of the population appears to be effective. Moreover, monetary and financial conditions will
continue to provide strong support in the coming months. Emerging economies, on the other hand, will sufferfrom unequal access to
the vaccine and less capacity of their policies to support activity.

Major central banks still supportive… for the moment
The central banks of the major developed economies will maintain their very accommodating policies. Indeed, the monetary
authorities continue to perceive the recent rise in inflation as transitory. The observed price pressures are largely explained by weak
base effects, shortages and bottlenecks related to the normalisation of activity. In the euro area, the risks of a transmission of this price
increase to wages will remain limited in a context where economic activity still appears to be deteriorating relative to the pre-crisis
situation, in particular with a still high unemployment rate. In the United States, the strength of the recovery could give rise to fears of
some price-wage loop and will prompt the Federal Reserve to change the tone of its speech in the last quarter of the year. The median
forecasts of the FOMC members now suggest two rate hikes in 2023.

Too pessimistic bond markets ?
Bond markets have been again affected by fears of covid evolution on economic activity. However, the recent fall in long-term interest
rates seems excessive if the effectiveness of vaccines. The developed economies recovery confirmation and the change in Federal
Reserve’s tone wouldimply a gradual rise in interest rates. This moderate rise in interest rates should not weigh on growth, northerefore on the performance of equity markets.

Keeping our asset allocation choice: overweight on European equities and underweight on bonds
In this context, even if valuations may seem expensive in absolute terms, we consider that the recovery environment remains favourable
to equities relative to bonds. We therefore remain Overweight equities. In terms of regional preference, we are overweight onEuropean
equities. We believe that there is still a gap between the US recovery -where activity has already returned to pre-crisis levels - and those
in the Eurozone and the UK, which are expected to catch up. We also continue to recommend a balanced mix of growth and value
stocks,with a preference for companies with pricing power.
We maintain an Underweight position on the bond markets, particularly in government bonds of advanced economies. The spread
between corporate and government bonds is small and unattractive to investors.
We remain overweight on gold that remains attractive as a hedge against extreme event risk. We remain neutral on major currencies,
except for a slight overweight on the Swiss franc.

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