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LGT Private Banking Europe House View – March 2021

February 24, 2021

In view of the dual stimulus measures to contain the economic damage caused by the corona crisis, inflation concerns on capital markets have increased noticeably. As a result, the rise in commodity prices is currently at the center of market activity. However, our investment strategy remains constructive and we maintain our preference for equities over bonds. At the same time, we upgrade commodities to “attractive“ and reclassify liquidity as “neutral.“

LGT Private Banking Êurope House View

Towards the end of the first quarter of 2021 and with the onset of spring in the northern hemisphere, the corona pandemic continues to have a firm grip on both our daily lives and the media. One year on, the medium to long-term consequences of the last twelve months are slowly but surely coming to light. For the moment, however, this does not (yet) seem to worry investors on international stock markets. There is too much confidence in the central banks and governments to compensate for any weakness in the economy and especially in the equity markets or in risky fixed-income segments with new stimulus. Pandora's box is open or the classic “moral hazard“ is created. Even a rise in long rates last month in the developed world of up to 25 basis points in the ten-year range and towards 30 basis points in 30-year US government bonds, has so far failed to significantly dampen stock market sentiment. Another rapid rise in yields, on the other hand, could be a significant headwind for risky asset classes, as there is now some alternative in the hunt for yield with 30-year US Treasuries now yielding over 2%.

Economic growth above potential

China's gross domestic product (GDP) has already reached pre-pandemic levels in the final quarter of 2020. Economists believe that the US economy will also be back above its pre-corona crisis level by the third quarter of 2021 at the latest. This is in stark contrast to the global financial crisis twelve years ago, where it took around three years to make up for lost economic growth. The main reason is the unprecedented fiscal stimulus that enabled such a rapid recovery. A second important point is that economic growth in the US and in large parts of the world can be expected to exceed potential in the coming quarters. After the USD 900bn US fiscal package at the end of last year, the new US President Joe Biden announced a further fiscal policy injection in the range of USD 1 to 1.5 trillion. With a Democratic-dominated House of Representatives and an extremely narrow majority in the Senate, President Biden's plans for further aid to the ailing American population are likely to succeed in the end. In addition, the US government has promised to invest more than one trillion US dollars in the country's infrastructure and/or in the health sector.

Vaccination strategy

Most Western countries face either the second or already the third Covid-19 wave. As a result, many economies are struggling with further lockdowns and for the most part have never been able to fully reopen their economies to 100%. The G7 nations have realized that ultimately, a sustainable opening of the economy is only possible with a proper vaccination strategy. Optimism is therefore steadily increasing with the introduction of more vaccines. In addition to the start of vaccination campaigns, contact restrictions and the effects of naturally acquired immunity are also curbing the pandemic. At the heart of the matter, however, is the right vaccination strategy, and here Israel is currently considered the model student, or proxy. In Israel about 40% of the population has already been vaccinated, resulting in a significant decrease in new Covid-19 cases. The hope of investors now is that this trend will also be seen in major economies once large parts of the population have been vaccinated.

Rerating commodities from “neutral“ to “attractive“

With a setup of economic growth above potential in the coming quarters and further fiscal stimulus in the form of infrastructure projects, the rise in commodity prices is likely to continue. We see the greatest potential the coming months particularly for base metals. Commodities also offer some hedging against inflation across assets. However, according to the US Federal Reserve (Fed), the inflation trend is not yet a cause for concern, but from today's perspective it still makes sense to position accordingly.

Investment strategy 

Our medium to long-term outlook remains constructive and so does our investment strategy, taking risks only very deliberately. The preference for equities over bonds remains unchanged. The recent rise at the long end of the yield curves has shown how low the return potential is. We now see potential in commodities and have upgraded this segment to “attractive“. At the same time, we now rate liquidity “neutral“. In our view, risks should primarily be taken where investors are still adequately compensated by historical standards.


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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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