Amundi Investment Talks 6

Current assessment
The Covid-19 outbreak has progressed in waves, beginning from China, then moving to Europe, US and now to emerging countries. While there has been some optimism in markets lately with equities and oil prices rising and coronavirus cases stabilising in Europe (Italy, Spain France), the continued evolution of the pandemic and the withdrawal of containment measures remain key. In parallel, global economic data has been weak and we do not expect any material improvement in the coming weeks. However, the possibility of an agreement for oil supply cuts has been positive from a macroeconomic standpoint.

 A common European fiscal response

 The lack of progress in the last Eurogroup meeting was not surprising given the conflicting positions of some finance ministers. Primarily, there are two viewpoints. First is the Dutch-German approach (supported by Austria and Finland) favouring ESM, EIB credit guarantee program and unemployment insurance scheme, all of which total to around EUR500 billion. However, the Southern countries are concerned about the political stigma associated with the ESM and propose a common bond or debt mutualisation instead. It is too early to say whether a compromise will be reached, but for now, the first line of defence remains the fiscal programs of governments and the backstop provided by the ECB.

Investment approach

 We believe trying to time the bottom is unrealistic at this stage and despite the recent rebound, markets appear far from being settled. Investors could selectively look for opportunities in investment grade credit of European and US companies, which may benefit from central bank support. Here, focus on quality and liquidity management is crucial. In our view, in equities, while more clarity is required on earnings growth for this year and the next, pockets of potential opportunities exist in Asia and in more innovative business in the US and globally. However, for the time being, caution is required.