H2 perspectives, what can we expect from the second half of 2021?

Under this uncertain scenario we have received the insights from the main asset managers in the industry too see what we can expect from this second half of 2021.

Investor Relations Specialist

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In this second half of 2021 it looks like the world’s economies have begun to recover in a post-pandemic environment market. Large-scale vaccination campaigns, stimulus packages and the slow opening of the borders and travel bans around the world can have a big influence in the markets in the following months. Under this uncertain scenario we have received the insights from the main asset managers in the industry too see what we can expect from this second half of 2021.

Gilles Seurat, Multi Asset Fund Manager, La Française AM

We are still constructive on European equity markets. Fundamentals remain supportive with vaccination finally getting done, economies on the verge of full reopening and corporate earnings looking great thanks to the very low 2020 comparison.

Governments will probably be sluggish to unplug support to the economy, which will translate into an abundance of liquidity – usually positive for equity markets. What’s more, the bravest ones like Mr. Biden’s are even discussing adding stimulus. This will make investors more confident about growth – another positive for equities.

Similarly, central banks have pledged not to remove stimulus for the time being. The Fed’s first hike will not happen in 2021 but most probably in the second half of 2022. The ECB will keep buying corporate bonds for the foreseeable future: the first program to be wound down will be the PEPP, which is only made of sovereign debt, not corporate bonds. Firms will therefore continue to enjoy abundant liquidity, another positive factor for Equity markets.

Although they are expensive in the US, valuations in Europe are not stretched, especially if looking at risk premium (earnings yield minus German bunds yield). Lastly, equities have historically been a good inflation hedge, which makes them attractive in the current environment.

Raphaël Gallardo, Chief Economist at Carmignac

Since the start of 2021, the world’s economies have begun to recover in a post-pandemic environment marked by large-scale vaccination campaigns, yet they are doing so in a desynchronised manner. Europe and Japan will still have a negative output gap in 2022, while the US economy is on a path toward overheating.

How might this situation play out? Is US inflation a risk for financial markets globally? How can investors take advantage of the diversification opportunities created by the current desynchronised recovery and the divergence among economic blocs? 

After the asymmetric shock from the pandemic, economic cycles across the major regions will be further desynchronised by differences in the pace of vaccine rollout and the extent to which fiscal policies initiate a gradual path towards normalization.

In the short term, the stimulus programmes and the forced savings built up during the pandemic should lead in 2021 to a vigorous rebound in demand from households and businesses alike. This will bring about a temporary rise in inflation due to supply bottlenecks affecting semiconductors, transport by road and by sea, construction materials and specific metals (such as copper and cobalt) involved in the energy transition. In the United States, the problem is being compounded by labour shortages caused by lower immigration and unusually generous unemployment benefits.

The pandemic has accelerated three key underlying trends: Digitalisation, Deglobalisation and Decarbonisation. The first constitutes a positive supply shock, but the other two entail negative supply shocks that may well generate more lasting inflation.

Allianz GI Team

According to Allianz GI, the economic outlook is positive at mid-year, thanks in large part to the significant economic stimulus packages passed over the past year, although all this growth may come at a price. Overall investors will have to consider navigating an environment of global growth with ups and downs and increased inflation expectations.

The looming threat of inflation remains one of the main risks at mid-year, making it important to preserve purchasing power and protect against market volatility. We still maintain a bias towards risky assets, albeit with some caution, so we are considering a more neutral position on the risk/return spectrum, at least in the short term.

Consideration needs to be given to keeping durations short and actively managing positions: bond markets may be concerned about inflation and central bank action. The case for sustainable investing continues to gain traction in the post-pandemic recovery and ESG factors will be critical in assessing a new set of risks and identifying previously unknown opportunities.

In addition, Allianz GI say investors will need to consider four key issues for the remainder of 2021:

  1. In the post-COVID boom, investors will have to contend with diverging economics, high valuations and the spectre of inflation.
  2. In this “lower rates for longer” environment, inflation needs to be watched.
  3. Any pullback in Chinese equities should be seen as an opportunity to re-establish a longer term position.
  4. Sustainable investment is the new standard

Pascal Blanqué, Group Chief Investment Officer and Vincent Mortier, Deputy Group Chief Investment Officer at Amundi

We are already reaching the peak of economic acceleration. What matters going forward is what will be left of this bounce in growth and inflation. Markets are pricing in a Goldilocks scenario: low inflation and higher growth at trend, but we will likely end up with higher structural inflation and lower growth instead.

For the first time in decades, there is a desire for inflation. Central Banks will let the music play on, they will neglect inflation risk for as long as possible, and they will archive it as a temporary effect. We are moving away from the great moderation, with the end of the rule-based monetary and fiscal regime.

It takes time before institutions adapt to a new regime. The next Volker is not around the corner. Higher inflation and the volatility of inflation will be key features of this new regime. Investors believe they will wake up in the 30s, while they will end up waking up in the 70s.

The de-anchoring of the system may come at some point: the main risk is seeing the yield curve go out of control. The direction of real rates is key. The first sequence is for real rate to move down, and this is still positive for risk assets. The second, which is less benign, is for higher real rates.

The new regime challenges the traditional 60/40 allocation. Investors will have to factor in inflation and enhance diversification to face the challenges of a higher level and volatility of rates. In our view, government bonds are no longer the efficient diversifier of balanced portfolios, but they retain a role for liquidity purposes.

Duration should remain short. Investors should resist the temptation to go long duration too soon, as the direction of rates is upwards. We believe that equities are a structural engine of returns, a sort of real asset. Investors should play equities through an inflation lens: value, dividend, infrastructure.

Nordea AM team

The first quarter saw the first signs of the global economy reopening thanks to vaccination and high government spending. We expect the global economic recovery to progress slowly in the second quarter and to accelerate in the second half of the year. Inflation is likely to rise, starting from low levels (base effect) and due to the reopening of the economy, although central banks are unlikely to take this development into account.

We believe that a context of rebounding growth and a passive attitude by central banks is favourable for emerging markets, especially given that China’s economy is also rebounding and India’s will eventually rebound. However, there is another side to this development.

As the global economy improves, there will also be renewed concern that the end of accommodative monetary conditions may be looming. This, in turn, leads to a steeper yield curve in the US and pressure on growth companies. In this context, listed infrastructure companies, flexible solutions and mortgage-backed securities tend to reduce the risks of a typical portfolio.

The recovery of economic activity in China and eventually India can be expressed through exposure to Asia-Pacific equities.

We also focus on global social empowerment, a megatrend underpinned by multiple catalysts (economic, social and technological), while equities are seen as a partial hedge against inflation. If the economy overheats, globally listed infrastructure companies should continue to benefit from public spending in Europe and the US.

It is a defensive asset class that trades at historical discounts and has high exposure to long-term trends such as asset obsolescence, decarbonisation and data growth, which will further boost growth potential. The steepness of the curve should also prove favourable for European financial sector debt, while covered bonds offer safety, especially those with short duration.

The backdrop in the second quarter should be mostly favourable for risky assets, although fears of persistently high inflation episodes could alter this assumption. We expect this to translate into volatility spikes as well as periods of lower growth expectations. This scenario continues to argue for flexible solutions that can adapt quickly to changing circumstances through dynamic asset allocation.

Florence Barjou, CIO and Jeanne Asseraf-Bittoin, Global Head of Market Research, Lyxor Asset Management


The conjunction of economic stimulus programmes and end of virus have created the perfect environment for economic growth. While much of the focus has been on the US, the momentum is likely to shift to the EMU in H2.
One dark cloud is the spread of the highly contagious Delta variant, which is now in 80 countries, with a recent surge in Africa, Russia, Portugal and the UK. It will likely become the dominant strain in the US and Europe.

The good news is that vaccinations appear to protect against serious infection, even though the Delta spread could delay reopening, especially in developing markets.
Commodities are also a mixed picture. Base metals, which rallied strongly in H1, have softened due to uncertainty stoked by the Delta variant. OPEC+ will likely add oil supply cautiously, allowing oil prices to stay firm. Whether the commodity boom lasts will also determine whether inflation is here to stay

We keep a long positioning on risk assets, albeit less aggressive than at the start of the year due to the ongoing rally on financial markets.
The reflation theme is still valid, especially in Europe, where we see growth as well as prices
accelerating slightly, prompting us to have an overweight stance on European equities, which will also benefit from a positive corporate profit growth momentum.
Due to the expected gradual normalization of monetary policy, long-term interest rates should rise,
leading to an underweight stance on most fixed income asset classes. We have a slight overweight
recommendation on gold as a hedge as our portfolios have a strong equity bias.

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H2 perspectives, what can we expect from the second half of 2021?