Transition from hope to growth

In 2021, the global economy is growing at a very high level. The OECD just increased its forecasts for 2021 and 2022: Instead of 5.6 per cent growth worldwide, it now expects 5.8 per cent for this year. For 2022, the OECD expects growth to be 4.4 per cent, compared to the previous forecast of 3.7 per cent. “A veritable investment boom by businesses is anticipated”, Gerlinger pointed out. “Companies will have to increase capacity due to higher demand. Since investments in production facilities have been lacking in recent years, some of the equipment is fairly outdated. Corporate profits are surging and cash ratios are high, so businesses can certainly afford to invest.” Economic growth is also spurred by monetary and fiscal policy initiatives, which will continue to have effects well into the coming year.

“We are seeing even more potential in Europe than in the US markets, which have already been advancing strongly”, Gerlinger added. US economic strength is also reflected in the above-average corporate results of recent quarters. “Analysts’ estimates predict high earnings growth for the entire year 2021 and for the year 2022”, Gerlinger said. It is quite possible that rising yields and fears of inflation will put share prices under slight pressure over the summer, particularly in the growth and technology sectors. “As a consequence, valuations would correspondingly decline, which in turn would make the higher-valued US stocks more attractive again”, Gerlinger highlighted.

Thanks to rising vaccination rates and further business openings, Europe is increasingly coming out of the grip of the pandemic. While gross domestic product still declined in Q1 of 2021, the outlook for the remainder of the year is significantly improving. “Economic growth is expected to be above average in 2022 as well”, Gerlinger continued. “Since industry and thus the stock indices in Europe are subject to cyclical variations, the share prices of cyclical companies could benefit disproportionately from the economic recovery.”

In terms of portfolio composition, this means that the overweight in US equities will be reduced to neutral. “Accordingly, we will be increasing the weighting in European equities”, Gerlinger explained. UK equities will also play a greater role, as catch-up potential continues to be seen here following Brexit. “Based on our economic outlook, we are increasing our weighting in value and cyclical stocks at the expense of growth and technology stocks”, Gerlinger concluded.

On Friday, 25 June 2021 at 10.30 am, Moventum will host “And what are the central banks doing?”, an Asset Allocation Web Conference (in German). Interested journalists may register via this link.

Additional information is available at www.moventum.lu