Global Investment View September 2020

The appetite for risk assets has remained strong over the summer lull. This summer season has seen both the confirmation of existing themes and the emergence of new ones. On the former, the decoupling between the real economy and financial markets has proved persistent. Another confirmed trend is that the virus is not over: the back-to-school test in September will be key. A sharp reacceleration of the virus cycle would hit the financial markets, leading to mounting expectations of additional support measures, and this would again drive markets. A W-shaped recovery would be the most likely scenario in this case. On geopolitics, the US-China confrontation has taken a new twist recently in the tech sphere. President Trump has to resist the temptation to break the trade deal, as this would be disruptive for the fragile recovery and markets, but he is likely to keep pressure high ahead of the elections. The Presidential race is still very uncertain and a Democratic sweep would be a market mover, possibly leading to higher volatility in the corporate sector. For investors, the scenario is uncertain, with asymmetric risks. Markets are becoming similar to their February conditions (high valuations and complacency). Many sectors are far from recovering to pre-crisis levels, many companies have been kept alive with subsidies and the level of debt in the system has ballooned. Risk assets are discounting additional stimuli, a near-term vaccine and any net positive benefit from Democratic policies. Any disappointment is a reason for caution, and all the more so with tight valuations. In terms of investment strategies, this means:

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