Special Europe investing in the recovery

As the European economy is recovering from the largest economic shock of modern history, we are revising our growth and inflation assumptions to the upside. Although the path to recovery is uneven among member states, we believe the EU will see two years of strong growth while inflation should revert below 2%. The ECB should implement a smooth transition from its emergency policies to a “classic” QE and keep policy rates on hold. We see the EUR/USD moving gradually towards 1.15 over 12 months.

In this context, we like periphery bonds and in particular Italian bonds in absolute and relative term. Within the European credit markets, we prefer high beta segments such as subordinated debt and BBBs within IG and high and mid-rated corporates within HY. We reiterate our positive stance on European equities, which brings a cyclical and value tilt to the portfolio. We also highlight the positive impact of NGEU for Central and Eastern European countries.

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