House Views -December 2021

FAVOURABLE OUTLOOK FOR 2022

Strong recovery to continue in advanced economies. Growth will probably lower after this year's rebound but  should remain pretty dynamic. Company and household finances look strong and built up savings should keep consumption ticking over Monetary and financial conditions are also helpful, with real interest rates still clearly negative. Prices remain under upward pressure from production and supply chain tensions, but these should
gradually decline allowing inflation to ease back over the year, though it is likely to top central bank targets for some months yet. Another COVID wave could pose a threat to mobility, particularly in Europe just now, but
greater vaccine take up and new treatments should limit its reach.

A higher growth environment will bring higher inflation albeit mostly short lived prompting central banks in several countries to shift monetary policy back toward normal. The Fed will likely continue tapering its asset purchase programme and could start hiking rates in 2022. The ECB, meanwhile, will likely stick to its highly accommodative policy as euro zone inflation is more modest. 

We went to an Overweight allocation to equities. Indeed, even if the uncertainties (concerning COVID and economic recovery) could generate some volatility, the context will remain globally favorable for risky assets. We raised our exposure to the US market, where the earnings outlook remains bullish. We also went to Overweight on emerging Asian equities China faces some serious short term risks, but its equity prices are looking particularly tempting for an economy that can still offer strong mid term growth. Other emerging markets look less attractive, facing the threat of embedded stagflation (meagre growth and high inflation) On the other hand, we are cutting exposure to US high yield corporate debt and hedge funds, now less appealing in relative terms.

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