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33


Leading


CIOs weigh in on key economic trends


David Bailin Citi Private Bank


Brexit


There is more certainty – we know what Brexit looks like and we understand where it’s going to create friction. We think the financial services industry, as well as some of the UK’s most key industries, are going to be just fine.


Edward Clive Eighteen48


We’re broadly ‘Brexit agnostic’ in our portfolio allocations. We invest globally with no exposure to UK funds and we don’t speculate in currencies. The ramifications for financial services are gradually becoming clearer, but from an investment perspective, Brexit changes very little for us.


César Pérez Ruiz Pictet


CIOs were not investing in the UK for quite some time. However, industries such as automobiles decided not to pull the plug on the UK, which proved to be the right move: it has seen significant recovery post-deal. UK equities are now trading at a big discount, which spurred us to change our stance on the asset class from negative to positive.


Pandemic recovery


We are a few months away from a major boom in economic activity. We’re going to have above-trend growth – 5-6 per cent in the US and just one percentage point less in the UK – for a couple of years from the day that the whistle blows. The fiscal stimulus in the UK, the US and the EU is the thing that the governments did best. The entire global trade pipeline is waiting to be refilled.


The markets


We predict an earnings boom. Corporate earnings per share are poised to grow by more than 25 per cent in the US. This could result in rapid growth rates beginning in Q2. You have to look for companies that will be beneficiaries of the reopening. Emerging markets are going to come out of this last, but we have high certainty and conviction that they will recover.


Geopolitics


The US v China conflict is developing along different axes, the most important being the ‘open vs closed internet’ and ‘open vs closed privacy’. Europe is going to be acting more independently of the US, it’s not going back to that same cosy relationship it had before Trump. Plus, Europe is already having its own venture renaissance in technology and innovation.


Predicting the timing of reopening is a risky game. This is the nature of a Black Swan event. If you rotate your portfolio so that it’s largely in reopening plays, and then the reopening is pushed back, you’re going to have a challenging outcome. Given the long-term nature of the businesses that we invest in, very few have had their intrinsic value affected so far.


Stocks as a whole have not been irrationally priced. Current year price-to-earnings ratios do not look excessive compared with historic 25-year averages, and equities are inexpensive relative to bonds. We don’t invest in the index, however. We focus on quality growth stocks, private investments, and on talented managers in specialist and/or inefficient areas.


It’s good to have a more internationalist approach in the White House – a defence of democratic values is a positive thing. But it is impossible to judge the impact on markets over any given time horizon. A focus on climate- change will certainly have some quite specific areas that it benefits near term. We prefer to think about the longer-term fundamental impacts.


For the next six months, all eyes will be on vaccines (and Europe’s poorly managed programme will go some way to justify Brexit). We will then see the benefits of fiscal stimulus and £500 billion of pent-up demand, which will aid growth more than the market anticipates. After that comes the hangover from pouring 25 per cent of GDP into the economy: inflation.


I am forecasting ‘the return of the losers’ in the wake of industries being decimated by the pandemic, initiating our barbell approach. On the other end of the barbell will be growth companies in technology and healthcare. Emerging markets will benefit from economic recovery, as will cyclicals; there will be huge investments in environmental and infrastructure.


A moderate winning the Iranian election could mean good things for the supply of oil. Elsewhere, Europe’s post-pandemic recovery plan hangs in the balance; Berlin could push austerity, but poorer nations like Italy and Spain might disapprove. In the US, Biden has made it clear where he stands on human rights abuses, which could cause friction with China.


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