After the rescue. As we enter the 20H2, Covid-19 is still lurking around, and influencing our social and economic behaviours. The number of new daily cases globally is at a new high. Partly, this reflects more intensive testing. The latter now captures a broader and younger population. 


  • The aftermath of the Global Covid Crisis (GCC), marked by elevated government and non-financial corporate debt, dif-fers from that of the GFC (households and bank debt). Bigger states, interventionism, deglobalisation, QE for longer, more taxes, bond-friendly regulations etc. are all part of the post-GCC world.
  • We analyse ‘new behaviours’ in more depth in our upcoming White Paper: ‘Life after Covid: the LDI view’. They do not bode well for potential growth. The illusion of a V-shape recovery, however, will support risk sentiment over summer.
  • The autumn looks more challenging, as the pandemic might put more pressure on the health systems, the recovery flattens out and political risks rise (“blue wave” at US elections? “Bare bone” Brexit deal?)
  • Because timing market turns perfectly is so hard, we enter summer with an only moderate pro-risk bias, focused on IG Credit. We take selective credit risk: prefer hybrids, AT1 and Fallen Angels to High Yield. Expect corporate defaults to peak below the post-GFC level, but to stay high for longer, while recovery rates risk being lower.
  • We argue against short duration positions, even in the context of the V-shape illusion. Tactically, cyclical stocks are better positioned than Value, but the structural challenge is to source new Growth engines. The US dollar is set to pull back further.

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Investment View Q3:


US: Fiscal stimulus to boost GDP growth to 5.5% in 2021
The thin majority in the Senate will allow the incoming administration to deliver quickly a sizeable fiscal stimulus. We expect a package worth around US$ 800bn (on top of the US$ 900bn already agreed on in December), centred on the strengthening of direct income support to households, extended unemployment benefit and aid to local governments.
Last minute Brexit deal merely avoids the worst
A last-minute deal avoids falling back to WTO rules: After intense and painful negotiations, the UK and the EU finally agreed on Christmas eve on a Trade and Cooperation agreement. This prevented both sides to fallback to WTO rules.
2021 will see a ‘repair’ of the deep Covid-19 damages, with the economy set to rebound strongly as society normalises into summer. But there is much to despair about. Potential growth will be lower out of this crisis. Employment will recover more slowly and Covid has fanned inequalities. Investors can also lament about the fall of future investment returns.