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2020/12/15 / Erste Group Research

Global Strategy Q1 2021

Following a deterioration in the pace of economic growth in 4Q, GDP growth is set to remain noticeably muted in coming months, and we do not expect the recovery to pick up before 2Q 2021. While safe-haven investments should remain stable in 1Q 2021, we expect moderate gains in the stock market in view of forecast earnings growth. In corporate bonds we favor securities from the BB-rated segment. Careful sector and securities selection remains highly important.

Economy: The strong increase in new COVID-19 infections in Europe and the US and the associated containment measures have become a significant drag on the economy in 4Q. Growth will remain noticeably muted in coming months. The recovery should not pick up before the 2nd quarter. Due to warmer temperatures combined with more efficient testing and the beginning of vaccination coverage of the population the pandemic should then be gradually contained. A fiscal package in the US and the first monies from the EU recovery fund should exert a supportive effect as well. In the US we expect GDP growth of +3.9% in 2021 on the heels of a -3.8% contraction in 2020. In the euro zone, GDP is expected to grow by +4.5% in 2021 after contracting by -7.6% in 2020. In view of slack in the labor market and moderate energy prices, inflation in the euro area should remain low at 1% (2021e), while we expect inflation to reach 2% in the US.

Bonds: Central banks have reacted with concern to deteriorating economic conditions in 4Q and are mainly employing their liquidity tools to continue to provide support to the economic recovery. Both the Fed and the ECB are taking the robustness of the recovery into account in calibrating their instruments and - apart from ensuring favorable financing conditions - are primarily focused on extending their support measures for a sufficiently long period of time. As policy rates in both currency areas are set to remain low for a long time to come, moves in short maturities in the bond market should be negligible. While yields on medium and long-term maturities will remain subdued due to central bank securities purchases, they will respond with slight increases to a strengthening of the economic recovery as 2021 progresses. In corporate bonds, we continue to recommend BB-rated bonds and IG-rated hybrid bonds, with bonds of issuers in cyclical sectors offering higher performance potential than those of issuers in defensive sectors.

Currencies: The foreseeable deployment of a vaccine against COVID-19 has resulted in a moderate weakening of safe haven currencies (USD, CHF). This should continue in 2021 as the economic recovery strengthens. The gold price should remain a beneficiary of negative real interest rates in 2021.

Stocks: Global equities should post gains in the first quarter of 2021 due to the favorable outlook for earnings. We expect an advance in the global stock market index in a range of 0% to +5%. Cyclical sectors should benefit from the expected economic upswing. Risks to this forecast would primarily entail a noticeable decrease in the recent momentum of favorable earnings growth expectations.

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General information

AuthorErste Group Research
Product nameGlobal Strategy
Topic in focusCredits/ Corporate bonds, FX, Macro/ Fixed income
Economy in focusAustria, Croatia, Czech Republic, Eurozone, Germany, Hungary, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Switzerland, Turkey, United States
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar, Swiss Franc, Turkish Lira, US Dollar
Sector in focus-


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