Amundi Investment Talks 10

Amundi Institute, Investment Talks

Thursday, April 30th

11:00am (CET)

Our Speaker - Vincent Mortier, Deputy CIO 

In this weeks call,  Vincent gives his views on some recent market events.

Dear All,

Thank you for joining the Amundi Investment Talks Call this week.

Key Take-Aways

Virus cycle is shaping market movements

The evolution of the virus cycle is the main variable leading financial markets at the moment. We are now moving from phase one of the economic lockdown to phase 2 of ‘living with the virus’ when the peak is passed and restrictions are gradually eased. The final phase 3 of victory over the virus will come when an effective treatment is found. However, we should be careful, as there is a risk of a second wave that could lead us back to phase 1 or 2. While markets welcomed this flattening of the contagion curve, they seem to have gone too far in their emotional response. Now, stronger fundamentals are needed for any sustained upward movement in stock prices and this will depend on how the virus cycle progresses.

Still far from complete normalisation

Monetary stimulus delivered by major CBs is definitely helping markets to normalise on different fronts. Spreads in credit markets in the EU and the US have narrowed but we are not completely back to normal yet as markets adjust to deteriorating fundamentals and increasing default risks. In Europe, we expect the ECB to do more, given that its newly launched PEPP of €750bn is too small compared to the upcoming increase in the government debt issuance combined with the reduction of economic activity. An increase in the PEPP envelope would help reduce the pressure on peripheral issuers such as Italy. Other key factors to watch are the sustainability of earnings and a potential EU recovery fund.

Stay cautious, use common sense

Credit is favoured vs equity because the latter seems to be pricing in a too positive outcome. In credit, it is a valuation call but given the rising default risk, investors should remain selective by focusing on credit analysis to detect which business will be most in danger. Debt sustainability, liquidity, and eligibility for CBs’ purchase programmes are other important considerations. On equities, it is a time to remain defensive and explore opportunities in quality/cyclicals stocks, which have been hammered in the crisis and now trade at attractive valuations. Overall, long-term opportunities exists for the discerning investor but selectivity is crucial.

*PEPP - Pandemic Emergency Purchase Programme

IMPORTANT INFORMATION

This material is for Professional Clients only and is issued by Amundi Asset Management. Unless otherwise stated, all views expressed are those of Amundi Asset Management as at the date of publication. These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will perform as expected. Past performance does not guarantee and is not indicative of future results. Investments involve certain risks, including political and currency risks. Investment return and principal value may go down as well as up and could result in the loss of all capital invested. This material does not constitute investment advice or an offering of any investment fund shares or units and does not take account of the investment objectives or needs or suitability requirements of any specific investor.