Holiday season optimism

Little has changed with the exception of the US where daily new COVID-19 cases have risen by 20,000 to about 70,000. Case mortality increased to about 800 daily.

The US is clearly in an ‘early re-opening’ wave, worse than the original one, which is  likely to result in travel restrictions and border delays.

Asset allocation

Net equity sentiment rose to about 30% with the UK remaining an outlier at 20%, because of trade agreement anxiety. It is not obvious what has caused the upswing.

Net equity sentiment remains at an elevated level while many economists warn against hopeful expectations of a V-shaped recovery.

Net bond sentiment reduced to a level between -20% and -30%, in the expectation of COVID-19 related liquidity injections.

Fears of ‘running out of tools’ seem to have been forgotten although central banks already own a large proportion of corporate debt.

Country allocation

The gap between US net sentiment on equity and bonds is large yet relatively stable, if not growing, a development reflected in neutral sentiment.

It is not clear what this optimism is based on, the holiday season may have a role.

expectations indicator1

Net EU equity sentiment is rising with some volatility while bond sentiment remains at pre-COVID-19 levels.

This expectation of future mild growth is warranted since the stimulus packages coming out of Brussels are better aimed at mitigating unemployment than the US measures.

UK net equity sentiment also remains at pre-pandemic levels although the country has been hard hit by the virus.

Net bond sentiment remains stable at about -20%, yet neutral sentiment on equity and bonds are close together at 50%, signalling uncertainty.

The increase in net Japanese equity sentiment is eyebrow-raising. While Japan is less dependent on exports than other Asian economies, it is still sensitive to the US.

Bond sentiment is remarkably stable and above other principal markets. However, neutral sentiment for bonds and equity move closely together, reflecting the high level of insecurity Japan is facing.

Peter Kraneveld, international pensions adviser, PRIME bv

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