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LGT Private Banking Europe House View – December 2020

November 25, 2020

Are we in for a tough winter? After the US elections, the market sentiment is again dominated by the corona pandemic, but also by hopes for a soon available vaccine. In our investment strategy, we confirm our constructive outlook and continue to favor equities over bonds. In equities, we have a more balanced approach to quality and see catch-up potential in emerging markets. Within the bond ratio, we are increasing emerging market bonds in local currency to “neutral“ and downgrade corporate bonds to “unattractive“.

LGT Private Banking Êurope House View

The US elections are now (nearly) behind us and the results seem clear enough. Accordingly, the Democrats have succeeded in recapturing the White House, but were not able to trigger a “blue wave“. For the moment it is not decisive whether incumbent President Donald Trump admits his defeat. More important is the next milestone in the election process on December 14. On this date, the electorate will meet in Washington and effectively elect the President. Meanwhile, Democrats retain the majority in the House of Representatives, but the anticipated landslide victory did not materialize. In the race for the control of the Senate, the Republicans are currently in the lead with 50 to 48 seats. However, on January 5, 2021, a runoff election for the remaining two Senate seats will be held in the state of Georgia, keeping the race still open. Currently, capital markets are assuming that President-elect Biden will face a split Congress. In the past, this has generally not been negative for the financial markets, as the “bi-partisanship“, in which non-party coalitions are formed, tends to be positive for the US economy. If, contrary to current expectations, the Democrats are able to win both remaining Senate seats in Georgia, Vice President-elect Kamala Harris would have the casting vote. In our opinion, however, this would no longer significantly unsettle the markets, as the new administration under Biden is faced with mammoth tasks anyway, first and foremost with the dramatic pandemic situation that has the United States firmly in its grip at the beginning of the winter season.

Progressing vaccine development gives hope

The pandemic situation in the northern hemisphere, particularly in the US and Europe, has worsened dramatically in recent weeks. Some states, such as France and Austria, have again imposed a lockdowns and in most G7 countries there have been massive restrictions on public life and various sectors of the economy. In some countries, hospitals are reaching their capacity limits and winter is literally on the doorstep bringing the regular flu season into play as well. In contrast to China or Japan, which seem to have the corona pandemic under control, the omens for other G7 countries are negative and the outlook rather gloomy.

While investors reacted to the first corona wave in spring with panic sales, the situation today is not really comparable. Firstly, central banks have stabilized the financial markets with their stimulus measures, providing markets with sufficient liquidity. Together with the stimulus provided by fiscal policy, these measures were intended to prevent a prolonged recession. Another major difference to the situation in spring is the efforts to rapidly develop a vaccine to combat Covid-19. In fact, Pfizer and German partner BioNTech, as well as the US pharmaceutical group Moderna have already shown positive results and other companies are still in the race. Investors expect the effective start of the vaccination program in the coming months and we share this optimistic assessment. Of course it is possible that there may be delays on the timeline, but we are definitely a big step closer to solving the corona crisis. As capital markets usually try to anticipate the future by about six to nine months, we believe that we are now closer to the end of the tunnel and can continue to expect a continuation of a V-shaped economic recovery. From an economic point of view, the road will certainly remain bumpy and we will be confronted with a pattern of two steps forward and one step back for some time to come, but the direction should be set for 2021.

Short-term euphoria

With each new piece of positive news on the development of a corona vaccine, markets become more euphoric and some indicators seem to suggest that investors are getting a little overconfident, at least in the short term. Many investors have moved into the bullish camp in the last few days. At best, this means a certain headwind in the short term, but in the long term it should not have a lasting negative impact on the solid market fundamentals. This is supported by the significantly increased market breadth of US equities in recent weeks, which is an important sign for an intact bull market in the medium to long term.

Investment strategy: we confirm our constructive outlook

Due to the ongoing pandemic we could be in for a tough winter. However, we maintain our constructive market outlook for the coming months. On the one hand, the dual stimulus remains supportive, and on the other hand a Covid-19 vaccine seems to be only a matter of time. Across assets, we are keeping the risk constant and our most important positioning is to maintain our preference for equities over bonds. However, we are aware that the valuation of equities is no longer favorable in historical comparison. But compared to bonds the return potential continues to look favorable in our view. Of course, investors have to accept greater volatility, but will be compensated for this over time with a positive return. In our opinion, volatility should be used in each case to further build up strategic positions in attractive areas such as the pharmaceutical sector. Within the bond ratio, we are increasing emerging market bonds in local currency to “neutral“ and downgrade corporate bonds to “unattractive“. Within equities, we are increasing emerging market equities to “attractive“. At the same time, Europe remains “attractive“ and should continue to benefit from the  value rotation.


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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email:
Editor: Alessandro Fezzi, E-Mail:
Source: LGT Bank (Switzerland) Ltd.

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