We are pleased to share with the third edition of Outlook & Convictions, a publication from our Private Banking Investment team.
Content:
- editorial by Lars Kalbreier, Global CIO Private Banking
- Macro forecasts by Mathilde Lemoine, Group Chief Economist,
- a presentation of our “5 CE” methodology for selecting high-potential and low risk stocks
- our main convictions on asset classes, with a focus on China
- our megatrends, key growth themes in 2021, including regionalisation.
READ THE PUBLICATION
The past 18 months have been truly extraordinary. The global pandemic has disrupted our lives to an extent which is unprecedented in recent history. Notions such as curfews had last been used during WWII and had all but disappeared from our vocab- ulary. Moreover, civil liberties that we had taken for granted, such as the right to assemble, were se- verely curtailed at the height of the lockdown. Dai- ly activities like going to the office, taking a plane, going on holiday or eating in a restaurant, all be- came much more difficult if not impossible.
The pandemic will most certainly cause some pro- found changes to several aspects of our lives. For instance, the way we work is likely to be different, with more flexible employment models that com- bine both a physical and virtual presence becom- ing mainstream. We might also trade more busi- ness trips for video conferences, etc.
There is another paradigm which the pandemic has affected: global supply chains. Covid has shown how fragile these supply chains can be. For dec- ades, the key trend for companies was to produce goods in low-cost countries, i.e. emerging markets. This meant that parts or finished products had to be shipped across the globe in order to reach their customers. Ever since the pace of the vaccination campaigns accelerated in developed markets with life returning to normal, many manufacturers have faced supply shortages that have exposed the fra- gility of global production chains. Voices speaking out in favour of more localised and regional supply chains so that production can take place closer to the end-consumer are getting louder. In addition, increased scrutiny of the carbon footprint of the goods produced no longer only includes the CO2 emissions from their production, but also their transport. Shipping cheap goods halfway across the globe will no longer be socially acceptable.
In the meantime, significant progress has been made in the manufacturing industry with the help
of new automation processes, robotics and 3D printing, thus significantly reducing the costs of production in locations with higher labour costs. We are convinced this trend will intensify as com- panies and governments are pursuing greater re- gionalisation with increased control over their sup- ply chains. This will provide a boost for investments in manufacturing technologies and the creation of regional champions (page 14).
From a more macro-economic standpoint, govern- ments and central banks have provided extraordi- nary support to the economy and financial markets during the pandemic. This took the form of large government stimulus programmes as well as very accommodative monetary policies as central banks provided abundant liquidity and maintained record low interest rates.
Now that many economies are on the road to re- covery, governments and central banks will need to bring their stimulus measures to an end. This should lead to more volatile financial market condi- tions and slower growth as economies start to nor- malise after experiencing a strong post-pandemic rebound. Investors will need to be more discerning to find sources of yield. Our Megatrends aim to identify these investment opportunities in secular growth themes (page 20).
In this context, selecting equities that provide a good balance between risk and return has become even more crucial for portfolios. Our “5 CE” invest- ment methodology based on the “5 Criteria of Ex- cellence” allows for such a selection. See the main components and the process of this methodology on page 8.
I hope you enjoy reading this edition of Outlook & Convictions.
Lars Kalbreier, CFA
