Beating the odds Opportunities in demanding times May 2020
Agenda WHERE ARE WE IN THE ECONOMIC CYCLE? INVESTMENT OPPORTUNITIES 2
Where are we in the Cycle? The Economy Cycle Extended Lower uncertainty regarding Brexit, US-China Phase One Trade Deal, Economic supportive monetary policies, Cycle global manufacturing recovery… 2019 Anaemic economic growth, Trade War, Brexit, global manufacturing deceleration… PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 3
Where are we in the Cycle? The Economy Cycle Extended Lower uncertainty regarding Brexit, US-China Phase One Trade Deal, Economic supportive monetary policies, Cycle global manufacturing recovery… 2019 Anaemic economic growth, Trade War, Brexit, global manufacturing deceleration… Recession Exogenous recession due to lockdown measures PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 4
Where are we in the Cycle? The Economy Cycle Extended Lower uncertainty regarding Brexit, US-China Phase One Trade Deal, Economic supportive monetary policies, Cycle global manufacturing recovery… 2019 Anaemic economic growth, Trade War, Brexit, global manufacturing deceleration… Recession Now Exogenous Swift and massive recession due response by to lockdown Central Banks measures and Governments PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 5
Where are we in the Cycle? The Economy Cycle Extended Lower uncertainty regarding Brexit, US-China Phase One Trade Deal, Economic supportive monetary policies, Cycle global manufacturing recovery… 2019 New Economic Cycle Anaemic economic Gradual economic growth, Trade reopening. War, Brexit, Beginning of a new global growth cycle. manufacturing High Government Debt. deceleration… Recession Now Low interest rates. Exogenous Swift and massive recession due response by to lockdown Central Banks measures and Governments PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 6
Agenda WHERE ARE WE IN THE ECONOMIC CYCLE? INVESTMENT OPPORTUNITIES 7
Investment Opportunities Stick to Equities We are at the beginning of a new economic cycle Announced fiscal stimulus will compensate the direct impact of containment and spill over effects Central Banks will make sure that liquidity is adequate and credit continues to flow This is not a “L” shaped recovery Equities are cheaper than most other asset classes Some short-term volatility is possible due to incoming earnings releases and macro data Contribution to the change in global US Corporate Profits around recessions government debt (% of GDP) Source: IMF WEO April 2020, JP Morgan PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 8
Investment Opportunities Stick to Equities We are at the beginning of a new economic cycle Announced fiscal stimulus will compensate the direct impact of containment and spill over effects Central Banks will make sure that liquidity is adequate and credit continues to flow This is not a “L” shaped recovery Equities are cheaper than most other asset classes Some short-term volatility is possible due to incoming earnings releases and macro data Contribution to the change in global US Corporate Profits around recessions government debt (% of GDP) Risks: New waves of Covid-19 infections Below-trend economic growth in Europe if EU fails to step up fiscal stimulus in a coordinated way Full-blown US-China trade war Source: IMF WEO April 2020, JP Morgan PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 9
Investment Opportunities Sector composition favours US Equities Emerging Sector United States Euro Area United Kingdom Japan Markets Information 23.0 9.9 1.0 11.6 15.9 Technology Health Care 14.0 7.5 11.4 9.8 2.8 Financials 13.0 16.8 20.1 10.6 24.6 Consumer 9.9 14.4 6.7 18.7 13.4 Discretionary Communication 10.5 5.0 5.4 8.3 11.3 Services Industrials 9.3 15.4 10.2 21.1 5.3 Consumer Staples 7.0 10.4 16.3 8.0 6.5 Energy 4.2 5.0 15.8 0.8 7.6 Utilities 3.2 6.3 3.3 1.6 2.7 Materials 2.7 7.2 8.6 5.3 7.1 Real Estate 3.2 2.0 1.2 4.1 2.9 Source: MSCI Indices PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 10
Investment Opportunities Sector composition favours US Equities Emerging Sector United States Euro Area United Kingdom Japan Markets Information 23.0 9.9 1.0 11.6 15.9 Technology Health Care 14.0 7.5 11.4 9.8 2.8 Financials 13.0 16.8 20.1 10.6 24.6 Consumer 9.9 14.4 6.7 18.7 13.4 Discretionary Communication 10.5 5.0 5.4 8.3 11.3 Services Industrials 9.3 15.4 10.2 21.1 5.3 Consumer Staples 7.0 10.4 16.3 8.0 6.5 Energy 4.2 5.0 15.8 0.8 7.6 Utilities 3.2 6.3 3.3 1.6 2.7 Materials 2.7 7.2 8.6 5.3 7.1 Real Estate 3.2 2.0 1.2 4.1 2.9 Risks: Stronger economic recovery should favour more cyclical sectors Increased regulation in Communications and Healthcare Source: MSCI Indices PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 11
Investment Opportunities Investment Grade Spreads widened Attractive yield pick-up over government bonds Universe with a relatively high credit quality Central banks are purchasing Investment Grade Corporate Bonds to avoid a liquidity crunch Economic recovery will contribute to improve underlying corporate profitability and cash-flow generation European Investment Grade Corporates Spread US Investment Grade Corporates Spread (bps) (bps) 400 300 350 300 200 250 200 150 100 100 50 0 0 Source: Bloomberg Barclays Indices PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 12
Investment Opportunities Investment Grade Spreads widened Attractive yield pick-up over government bonds Universe with a relatively high credit quality Central banks are purchasing Investment Grade Corporate Bonds to avoid a liquidity crunch Economic recovery will contribute to improve underlying corporate profitability and cash-flow generation European Investment Grade Corporates Spread US Investment Grade Corporates Spread (bps) (bps) 400 300 350 300 200 250 200 150 100 100 50 0 0 Risks: Covid-19 reinfection compromise the reopening of economies New European sovereign debt crisis Source: Bloomberg Barclays Indices PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 13
Investment Opportunities Gold Significant expansion in Central Banks’ balance sheets High fiscal deficits and elevated levels of Government Debt “Financial Repression” – Central Banks to keep real interest rates low or even negative Public support for protectionist policies will continue to increase “Security of Supply” will weigh on Global Trade Low opportunity cost Gold to perform well if macro deteriorates further or if inflation picks up due to supply constrains Central Bank Purchases Source: Citigroup, Capital Economics PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 14
Investment Opportunities Gold Significant expansion in Central Banks’ balance sheets High fiscal deficits and elevated levels of Government Debt “Financial Repression” – Central Banks to keep real interest rates low or even negative Public support for protectionist policies will continue to increase “Security of Supply” will weigh on Global Trade Low opportunity cost Gold to perform well if macro deteriorates further or if inflation picks up due to supply constrains Central Bank Purchases Risks: Ongoing economic weakness and low oil prices are deflationary in the short-term Stronger than expected economic recovery lead to an increase in real interest rates Source: Citigroup, Capital Economics PROTECTION | INDEPENDENCE | TRANSPARENCY | INNOVATION | FLEXIBILITY 15
Nothing in this presentation is deemed to be an offer, solicitation, or recommendation to buy or sell any product or service and should not be considered to constitute investment advice. The investment is subject to normal market fluctuations and there can be no assurance that an investment will return its value or that appreciation will occur. Investment does involve risk and the value of investments can go down as well as up. The investor may not receive back in total the original amount invested. Past performance is not a guide to future performance.
Millennium Banque Privée Investment Advisory Services Tel: +41 22 318 92 40 communication@millenniumbp.ch
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