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Investment Outlook Third Quarter 2021 Update

Jun 30, 2021

Investment Summary

  • Regarding market drivers, there is more uncertainty now than anytime in the past 9 months, which emanate from 1) tax and fiscal policy, 2) Chinese growth and 3) US monetary policy. Given strong returns over the past year, we are tactically neutral on equities in 3Q21.
  • In our 2Q21 strategy note, we said that inflation in the US would accelerate in 2Q21. Inflation indeed reached 5.0% in May. Nevertheless, contrary to our expectations, UST yields did not increase and edged down to 1.5%. The reason for this is decreasing inflation expectations and measures introduced in China to suppress commodity price inflation.
  • The Federal Reserve is likely to signal a change in policy in autumn this year and begin tapering its USD 120 bn month asset purchase program in early 2022 starting with MBS.
  • The Global economic cycle is unsynchronized. Credit impulse in China has already started to fade raising downside risks for commodities. Europe lagged Asia and the US in terms of the pandemic. Thus, we expect economic growth and earnings momentum to be superior for European companies by YE 2021. European equities also have a value-tilt with lower exposure than other regions to the tech sector and would therefore be less impacted by rising bond yields.
  • Oil prices are resilient to ongoing OPEC+ production increases as well as possible easing of Iran sanctions. We raise our average Brent oil price forecast to USD 68 for 2021 and USD 64 for 2022. Our long-term forecast is USD 57.
  • We increased our EURUSD forecast from 1.23 to 1.28 by YE 2021 given better than expected economic recovery in Europe, easing of COVID-19 restrictions, and increasing vaccination.
  • The Russian economy is on track to a full recovery. We keep our above-consensus GDP forecast at 3.7% YoY. We also expect USDRUB to reach 71 by YE 2021 amid higher oil prices and CBR tightening. 


Investment Preferences


  • We tactically downgrade Russian equities to Neutral (=) and see balanced risk and reward in global equities in 3Q21. Within equities we prefer Europe to other regions.
  • We move to a more balanced view between value and growth sectors. We also prefer to move from buying markets to buying selected names.
  • Within our GEM Eurobond positioning, we are Overweight (+) on Peru, Colombia and India. 
  • We are buyers of long-term OFZs on a one-year basis.

icon_pdf.gif   Full version of the report could be found attached.

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VTB Capital Investment Management