Global View - J. Safra Sarasin E-Services

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Global View - J. Safra Sarasin E-Services
Global View
4th Quarter 2020
Global View - J. Safra Sarasin E-Services
Cover: Eitai Bridge, Tokyo, Japan
Global View - J. Safra Sarasin E-Services
Contents

 Foreword
 “Peak Oil” ...demand 3

 Economic Outlook
 Recovery 5

 Forex Strategy
 Dollar weakness set to continue 9

 Fixed Income Strategy
 Real yields to stay low 11

 Emerging Markets
 Still some reasons to remain cautious 15

 Equity Strategy
 Cyclical equity recovery till end-2020 17

 Sustainability Focus
 What is the carbon footprint of countries, and how is it calculated? 21

 Asset Allocation
 Recovering, but still not healthy 24

 Market & Forecast Overview 26

 Contacts 29
Global View - J. Safra Sarasin E-Services
Global View - J. Safra Sarasin E-Services
Foreword

Foreword

“Peak Oil” ...demand

Dear Reader have lost 70% of their value over the past 10
 years compared with global stock market indi-
The global economy is currently on a surpris- ces, testifies to the dramatic erosion of the
ingly steep recovery path. In most of the value of assets owned by private and institu-
world's economies, the measures needed to tional investors.
contain the Covid-19 pandemic during the pe-
riod February to May unleashed the biggest The structural drivers behind this trend are ob-
economic collapse for several generations. vious: first, subsidies for fossil fuels were re-
But consumer demand, supported by govern- duced in the wake of the Paris agreement on
ment measures, is now steadily picking up climate change, and incentives created for re-
again worldwide. The recovery is being led by newables; second, renewable energy sources
the technology and healthcare sectors, but have now become cheaper than fossil fuels
goods-producing industries are also benefit- even without state subsidies; third, newly in-
ing from pent-up demand. Despite sporadic dustrialised countries such as China and India
outbreaks of the virus, the services sector is are promoting renewables in a bid to make
now also starting to show signs of life following themselves geopolitically independent; fourth,
the end of the lockdown. the electrification of modes of transport is
 surging ahead. The cyclical headwinds are
A continuing recovery of the energy sector also particularly challenging. Crude invento-
would therefore seem to follow from that. Oil ries are at maximum levels because very few
prices certainly rebounded to around 50 US oil wells were shut down during the crisis.
dollars per barrel in August, after May futures OPEC members cannot agree on much. Gov-
traded briefly below zero – a historic collapse. ernment investment programmes favour
However, analysis of the fundamental data in- “green” projects. Travel activity is likely to re-
dicates that a “return to normal” not only main extremely low. So “peak oil demand” has
seems unlikely, but hints at a perfect storm most probably passed already!
created by a combination of structural and cy-
clical headwinds.

The term “peak oil” has dominated discussion
in the energy sector for a long time. This theory
is based on statistical evidence that the
phases of exploration, discovery and produc-
tion of fossil fuels generally follow a bell-
shaped pattern. If this were to peak sometime
around the start of the millennium and produc-
tion fall off afterwards, oil prices would inevita-
bly rise significantly. But this analysis, based Best wishes
on the supply side, overlooks demand as a fac-
tor. After all, it is demand for fossil fuels that is
currently experiencing a relentless decline. Dr Jan Amrit Poser
The poor performance of energy stocks, which Chief Strategist & Head Sustainability

 Global View | 3
Global View - J. Safra Sarasin E-Services
Amrum, Germany
Global View - J. Safra Sarasin E-Services
Economic Outlook

Economic Outlook

Recovery
The global economy is recovering from the collapse in production in the spring caused by the
many restrictions on mobility imposed at the peak of the coronavirus epidemic. The occasional
flare-ups of infection rates in isolated areas show that from a health perspective it is too early to
sound the all-clear. In the meantime, however, households and businesses have grown more
used to the restrictions linked to the pandemic. The highly expansive monetary and fiscal policy
could therefore become a driver for a dynamic economic recovery in the second half of the year.
Even so, it will still take time for the economy to fully recover, as unemployment and capacity
utilisation rates will take a long while to revert to where they stood at the start of the year. We
think the biggest risk in the coming months will be the uncertainty created by the US presidential
election.

Unprecedented collapse in production which are often also available on a regional
During the second quarter of this year, eco- basis. For example, it is possible to track the
nomic activity collapsed on a scale far exceed- general mobility of individuals or how often,
ing all other crises over the last 50 years. In the and where, they book tables in restaurants.
US, for example, gross domestic product (GDP) This allows very swift conclusions to be made
slumped by 9.5%, by 12.1% in the euro area about consumer behaviour. The data pub-
and by as much as 20.4% in the UK compared lished in August for economic performance in
with the first quarter of 2020. the second quarter have therefore neither sur-
 prised nor disappointed financial markets.
Lockdown leaves deep scars
 Daily mobility is picking up again

Source: Macrobond, J. Safra Sarasin, 19.08.2020
 Source: Macrobond, J. Safra Sarasin, 19.08.2020
Despite this, there are signs of an economic
recovery that has gradually gathered momen- Economic policy's rapid response
tum over the course of the summer. The vast The broader availability of data not only re-
amounts of data now being collected from duces uncertainty for investors, but also al-
more and more areas of human activity as a lows a more rapid and targeted policy re-
result of greater digitalisation make it possible sponse. Politicians can respond to new clus-
to monitor the behaviour of private house- ters of infection, for example, with measures
holds and businesses based on daily data, limited to that region rather than having to

 Global View | 5
Global View - J. Safra Sarasin E-Services
Economic Outlook

impose a national lockdown again. Fiscal and policy to allow the inevitable structural
monetary policy measures can also be tar- change. This will be a balancing act, as gov-
geted more effectively, and their impact ana- ernments should also use loans, short-time
lysed more quickly. In most countries, politi- working and state ownership to try and help
cians have certainly responded to this crisis those companies only experiencing tempo-
far more rapidly and effectively than during the rary difficulties. The influence of the govern-
major financial crisis just over 10 years ago. ment on the economy is therefore clearly set
This could be one of the reasons why stock to increase: something that presents both
markets have recovered so quickly. It is also opportunities and risks.
clear that countries such as Japan and Italy
that responded proactively and swiftly to infec- Higher government borrowing in the mid-term
tion risks have also managed to contain the
spread of Covid-19 more successfully and
have been able to ease economic restrictions
sooner than other countries.

Economic restrictions easing

 Source: Macrobond, J. Safra Sarasin, 19.08.2020

 Higher government financing needs
 One of the risks associated with wider state
 ownership is undoubtedly rising debt levels.
 Even before the current crisis, countries such
Source: Macrobond, J. Safra Sarasin, 19.08.2020 as Italy and Portugal have had levels of debt
 that financial markets have consistently con-
Pandemic still the dominant factor sidered unsustainable. Even so, predictions of
We expect the current pandemic to maintain debt default have proven to be premature time
its vice-like grip, although we should also and time again. This is partly due to the clear
learn to deal with it much better. Improved European solidarity, which for example has led
treatment methods will bring down mortality to economic support in the form of the latest
rates and future vaccines will help to build EUR 750 billion pandemic recovery fund – one
immunity – especially in industrialised coun- step towards debt mutualisation. This acts as
tries. At the same time, there will be no return an insurance policy to prevent the break-up of
to the normality we knew before Covid-19. Ul- the union and limit the credit spread between
timately the pandemic has accelerated member states. On the other hand, the implicit
trends that presumably would have pro- promise of all the major central banks to keep
gressed far more slowly otherwise. Examples interest rates low and buy up debt securities
include the digitalisation as well as the re- creates a favourable environment in the long
gionalisation of the economy. This will lead to term for governments’ financing terms. This is
a higher proportion of e-commerce and much essential as well: significantly higher interest
less air travel, to name just two obvious con- rates could overstretch the budgets of some
sequences. It will be important for economic countries.

6 | Global View
Global View - J. Safra Sarasin E-Services
Economic Outlook

Low interest rates energise financial markets The risks are known
Thanks to extremely low interest rates, many Even if the economy continues to recover, risk-
dividend-bearing securities and corporate free investment will still be impossible. So far,
bonds appear relatively cheap. And the vast a rise in corporate insolvencies and credit de-
amount of liquidity on tap means faults has been avoided through
that funds are also available numerous state interven-
to make investments. The tions. However, many of
climate is only unfa- them are likely to
vourable for secure
government bonds.
 «The US simply have been
 postponed, as a
Current coupons presidential certain amount of
are already ex- structural change
tremely low and ad- election is a seems unavoida-
ditional price gains ble. Even if politi-
are fairly unlikely. If
 high, but cians allow this to
the economic poli-
cies are eventually
 known risk» happen, banks es-
 pecially are likely to
successful, inflation ex- face higher write-
pectations would increase downs. The US presiden-
and trigger a fall in bond prices. tial election presents an addi-
The US dollar, which so far has been sup- tional risk. Given the experience of recent
ported by higher real yields in America com- years, it is unlikely that the next few months
pared with other countries, is also likely to will be free of political conflict. Although this
come under pressure. However, such an envi- upheaval is expected, that does not make it
ronment should benefit gold and real estate. any easier to bear.
This at least holds true for residential real es-
tate. In contrast, commercial properties such Dr Karsten Junius
as offices and retail premises are likely to Chief Economist
struggle because of the growing number of
people working from home and shopping
online.

Economic policy uncertainty

Source: Macrobond, J. Safra Sarasin, 19.08.2020

 Global View | 7
Global View - J. Safra Sarasin E-Services
Bonneville Salt Flats, Utah, United States
Forex Strategy

Forex Strategy

Dollar weakness set to continue
Cyclical currencies particularly benefited from improved market sentiment during the summer,
while the US-dollar retreated substantially. The US government’s fiscal virus relief packages
should lead to higher inflation expectations and eventually result in lower real yields. Conse-
quently, the US-dollar should remain weak, while the positive trend for gold will likely stay intact.
Furthermore, the Swiss franc should perform well on the back of a comparatively robust domestic
economy.

Lower real yields to weaken Greenback ation of the dollar should be rather unlikely to
As volatility diminishes in foreign currency unfold again anytime soon.
markets, the focus has shifted to the rapid
weakening of the US-dollar against other ma- SNB likely to continue its interventions
jor currencies. We expect the Greenback to EUR-CHF
continue to lose ground throughout the re- 1.16 − 1.18
mainder of the year, mainly as a result of the 1.14 − 1.16

continuing decline in US real yields. This 1.12 − 1.14
 1.10 − 1.12
should be warranted as the US government’s
 1.08 − 1.10
fiscal package in response to the Covid-19 cri-
 1.06 − 1.08
sis likely leads to higher inflation expectations. 1.04 − 1.06
Furthermore, we expect the currencies of ex- 1.02 − 1.04
 26.2
port-oriented economies to appreciate against 0.98 − 1.02

the dollar as cyclical currencies will likely be -2 0 2 4 6 8
the primary beneficiaries during a recovery. Estimated weekly FX intervention, CHF bn
 Source: Macrobond, Bank J. Safra Sarasin
USD real yield advantage erodes further
 250 1.0 Swiss franc to fare well against euro
 200 The Swiss franc has gained ground against the
 1.1
 150 dollar during the past months, but retreated
 100 1.2 somewhat against the euro. The strengthen-
 ing European common currency causes up-
 50 1.3
 ward pressures on the Swiss franc to ease,
 0
 1.4 which allows the Swiss National Bank (SNB) to
 -50
 diminish their interventions in the currency
 -100 1.5
 market. In the medium term however, we ex-
 2010 2012 2014 2016 2018 2020
 USD-EUR 10y real yield advantage, bps, lhs
 pect the Swiss franc to appreciate further
 EUR-USD spot, reversed, rhs against the euro on the back of its real yield
Source: Bloomberg, Bank J. Safra Sarasin advantage and comparatively subdued mac-
 roeconomic data from the euro area.
On a separate note, the US-dollar appreciated
significantly amid the flight-to-safety in spring. Euro to gain further ground against US-dollar
However, given the historic scale of monetary In addition to a weaker dollar, the agreement
and fiscal relief measures undertaken, a com- among EU member states to establish a Covid-
parable dynamic, leading to a sudden appreci- 19 recovery fund helped to propel the euro to

 Global View | 9
Forex Strategy

new highs. During the fourth quarter, the nar- already taken a severe hit from the Covid-19
rowing US real yield advantage should improve crisis. In addition, we expect the Bank of Eng-
the relative attractiveness of euro-denomi- land to answer poor growth prospects with the
nated investments. In addition, the unfolding introduction of negative policy rates in the
economic recovery likely gives the euro further fourth quarter. And with real yields already lag-
momentum. In the past however, the euro has ging behind those of the euro and the US-dol-
responded sensitively to escalating rhetoric in lar, a rate cut would put additional pressure on
the smouldering trade conflict with the US. the pound sterling.
And as the date for the US presidential elec-
tion approaches, the latter could possibly flare Gold should continue to glitter
up again. Despite its recent stellar performance, gold
 should offer further upside potential. In the
Subdued outlook for pound sterling coming months, rising inflation expectations
 150 1.6 should fuel demand for gold ETFs (exchange-
 100 1.5 traded funds) and push the price of the pre-
 50 1.4 cious metal higher. Moreover, the run-up to
 0 1.3
 the US presidential election may cause market
 volatility to rise, which would likely act as an
 -50 1.2
 additional tailwind for the gold price.
-100 1.1

-150 1.0
 Falling real yields are pushing gold higher
-200 0.9
 2’100 600
 2015 2016 2017 2018 2019 2020
 UK economic health index, lhs 1’900 400
 GBP-USD spot, rhs
 1’700 200
Source: Bloomberg, Bank J. Safra Sarasin
 1’500 0
Crisis hits UK economy particularly hard
 1’300 -200
With a focus on the negotiations on the trade
deal with the EU, recent pound sterling perfor- 1’100 -400
 2018 2019 2020
mance has been heavily influenced by the de-
 driven by USD real yields, rhs
velopments around Brexit. Ultimately, we ex- driven by flight-to-safety, rhs
pect the negotiations to conclude with a bare- Gold price, USD per ounce, lhs
bones deal that should expand little beyond Source: Macrobond, Bank J. Safra Sarasin
WTO terms. The weaker future integration be-
tween the UK and EU market should further Dr Claudio Wewel
dampen the UK’s growth outlook, which has FX Strategist

10 | Global View
Fixed Income Strategy

Fixed Income Strategy

Real yields to stay low
Continued low policy rates, strengthened forward guidance and potentially open-ended asset pur-
chase programs by central banks will likely prevent nominal government bond yields from in-
creasing materially. As the nascent global recovery gains traction, inflation expectations have
room to rise, in line with commodity prices. We expect developed markets’ government bond
yields to increase only moderately over the next 6 to 12 months with higher inflation expectations
being the main driver for the move.

Developed markets’ real yields are falling Consequently, real government bond yields
Substantial cuts in real policy rates by central have fallen deeply into negative territory. The
banks, explicit forward guidance and aggres- unprecedented fiscal stimulus to combat the
sive purchases of various fixed income assets negative economic effects of the pandemic
have kept developed markets nominal long- will substantially increase the level of
term government bond yields at very low lev- debt/GDP in developed countries. As potential
els, even though there are increasing signs growth rates in developed economies have
that the global economy has started to recover fallen sharply since the financial crisis, it will
from the sharp recession induced by the be essential to keep real interest rates low
Covid-19 pandemic. (preferably negative) to be able to sustain the
 rising debt levels. Therefore, we expect real
The prospect for a rebound in economic activ- yields in developed government bond markets
ity, driven by substantial monetary and fiscal to remain low for an extended period.
accommodation, is reflected in market-based
inflation expectations which have recovered Developed real yields are deeply negative
strongly in line with commodity prices from the 2.0
lows reached in April 2020. This move was 1.5
supported by the perception that central 1.0
banks would be willing to let inflation rates 0.5

overshoot their long-term objectives. 0.0
 -0.5

Inflation expectations are rising in line with -1.0

commodity prices -1.5
 3.0 700 2010 2012 2014 2016 2018 2020
 Developed markets 10y real government yield
 2.5 (TIPS)
 600

 2.0 Source: Macrobond, J. Safra Sarasin, 17.08.2020
 500
 1.5

 400
 US – moderately higher bond yields and a
 1.0
 somewhat steeper yield curve
 0.5 300 After a record contraction in Q2 2020, the US
 2010 2012 2014 2016 2018 2020 economy is currently on track for a rebound in
 DM 10y breakeven inflation
 the third quarter. Manufacturing purchasing
 Bloomberg Commodity Index (r.h.s.)
 manager indices have recovered strongly as
Source: Macrobond,, J. Safra Sarasin, 17.08.2020 the economy has reopened. Also, retail sales

 Global View | 11
Fixed Income Strategy

have rebounded, helped by unprecedented upward pressure from higher inflation expec-
fiscal stimulus in the form of one-time cash tations and soaring budget deficits and has
payments, increased unemployment benefits, also limited yield curve steepening in the 2-
pay-check protection program for small busi- year/10-year sector. The yield curve had ini-
nesses and aid for large companies as well as tially steepened as the policy rate was quickly
state and local governments. The resurgence brought down to the zero-lower bound. How-
of infection rates in the Sunbelt states (Texas, ever, the steepening has been much less pro-
Florida, Arizona and California) was a stark re- nounced than in earlier cycles and the 2-
minder that the economic recovery will not be year/10-year nominal yield spread has strug-
even and will be accompanied by setbacks gled to move much beyond the 50bp level.
along the way. Curve steepening has been most pronounced
 in ultra-long maturities (above 10 years).
The Fed is currently conducting a review of its
monetary policy communication strategy. In- As we expect the Fed to leave the Funds rate
flation rates have consistently undershot the at current levels for an extended period, bond
Fed’s 2% objective in the past years. The most yields will stay comparatively low. Any rise in
likely outcome will be an average inflation tar- bond yields is more likely due to higher infla-
geting, where inflation can overshoot the ob- tion expectations. This should exert a steepen-
jective when the economy is strong to com- ing bias on the Treasury curve, mostly in ultra-
pensate for below average inflation rates dur- long maturities. Continued forceful interven-
ing recessions. The Fed is therefore likely to tion by central banks will limit the degree to
leave policy rates at current low levels well af- which yields can rise. We therefore anticipate
ter inflation rates have started to rise mean- only a modest increase in Treasury yields over
ingfully. The Fed has already communicated the next 6 to 12 months.
that it would leave rates unchanged until at
least the end of 2023, which is exactly what Euro area – from monetary to fiscal stimulus
forward markets are currently pricing. European leaders have agreed on a €750bn
 recovery fund (the Next Generation EU) to help
Market prices unchanged Fed Funds for the cushion the effects of the Covid-induced re-
next 3 years cession, as well as a new seven-year budget
4.0 worth €1.074tn. This is a step forward as it
3.5 has effectively been agreed to issue common
3.0
 debt to finance pan-European macroeco-
2.5
 nomic policy, something which had been re-
2.0
1.5 sisted so far. The €750bn package amounts to
1.0 5.4% of EU-27 GDP and consists of €390bn of
0.5 grants and €360bn of loans. In terms of coun-
0.0 try allocations, Spain and Italy – those hardest
 2017 2018 2019 2020
 hit by the crisis – will get the largest amounts,
 Implied Fed Funds in 3y though, as a share of GDP, Greece and Central
 and Eastern European countries will benefit
Source: Macrobond, J. Safra Sarasin, 17.08.2020 the most.

10-year nominal Treasury yields have largely This important fiscal initiative complements
traded sideways in a tight range over the past existing ECB measures, which added another
few months as the Fed’s potentially open- EUR 600bn to its Pandemic Emergency Pur-
ended purchase program and the strength- chase Program (PEPP) program and extended
ened forward guidance has counteracted it to at least June 2021. The ECB provided a

12 | Global View
Fixed Income Strategy

clear signal that it would do ‘whatever it takes’ cult with both sides insisting on their respec-
to prevent fragmentation of euro government tive positions. We do not expect the UK gov-
bond markets and to ensure a smooth trans- ernment to ask for an extension to the transi-
mission of its monetary policy to all regions, tion period that is set to end on December 31.
sectors and jurisdictions. Should there be no timely agreement, future
 trade relations with the EU, the biggest trading
Additional policy rate cuts by the ECB have be- partner, would be on terms only slightly better
come less likely as the effectiveness of even than those specified by the World Trade Or-
more negative rates is increasingly put into ganization (WTO). This outcome looks increas-
question. Consequently, German government ingly likely. Trade would become less inte-
bond yields have largely moved in a sideways grated and would prove to be a significant
trend over the past 6 months. We expect the headwind for UK economic growth. In addition
euro area economy to recover going forward, to that, overcoming the negative economic ef-
however, it will be uneven and with likely set- fects from the Covid-19 pandemic will take
backs along the way. With ECB policy rates ex- considerable time. The Bank of England will
pected to remain at current low levels for a therefore likely add more stimulus, including a
long time and only slightly higher inflation ex- cut to its policy rate to -0.1% in Q4. The Gilt
pectations, 10-year Bund yields have only lim- curve will likely steepen over the next few
ited room to rise. months as lower policy rates are priced in.
 Overall, we believe that Gilt yields are unlikely
ECB Deposit rates expected to be unchanged to rise in any significant way this year. We ex-
for the next 3 years pect moderate upward pressure mostly for
 1.0 longer maturities.

 0.5 Japan – more of the same
 We expect the Bank of Japan (BoJ) to continue
 0.0
 its policy of purchasing JGBs, corporate bonds
 -0.5
 and equities to ensure a smooth transmission
 of its monetary policy. The BoJ’s yield curve
 -1.0 control with a tight target corridor around the
 2017 2018 2019 2020 zero level for the 10-year sector and some
 Implied ECB Deposit rate in 3y wanted curve steepness in ultra-long maturi-
 ties will remain in place. We continue to expect
Source: Macrobond, J. Safra Sarasin, 17.08.2020 current yield levels to persist for an extended
 period of time.
UK – negative Base Rate in Q4
Negotiations with the EU about the future trad- Alex Rohner
ing relationship have so far proved to be diffi- Fixed Income Strategist

 Global View | 13
Ahu Akivi, Easter Island, Chile
Emerging Markets

Emerging Markets

Still some reasons to remain cautious
EM credit returns continued to be positive year to date, despite small punctual pullbacks. Inflows
and a hunt for yield targeting high grade credits have led to a compression in spreads since April
2020, while lower Treasury yields have also been supportive. Although economic stimuli are help-
ing to reignite production numbers, we think there are still reasons to remain cautious. The eco-
nomic recovery is at risk of losing some momentum. Consumer sectors remain significantly dis-
rupted and the outlook for the risky loans market, artificially held afloat by support measures, is
also uncertain. We recommend to remain selective, and still avoid credits in the very low range
(B/CCC) of the credit rating spectrum.

Economic recovery could lose some momen- uncertainties for the second half of the year, in
tum amid continuing covid-19 disruptions terms of fiscal balance and the capacity to tar-
The GDP year-over-year (yoy) growth numbers get the right sectors to reignite growth.
published so far for the second quarter of
2020 across Emerging Markets have been, as Chinese economy is recovering
 60 100
expected, largely negative, but somewhat
within the consensus range. Countries in 55
South East Asia including Malaysia, Philip- 0
pines, and Thailand, reported negative GDP 50

growth of respectively -17.1%, -16.5% and -
 45
12.2%. In Latin America, countries including -100

Mexico, Colombia and Peru reported negative 40
year-over-year yoy growth of respectively -
 35 -200
18.9%, -15.7% and exceeding -25% for Peru. 2016 2018 2020
In CEEMEA, Russia showed more resilience at China - Caixin PMI
 China - Economic surprises (rhs)
-8.5%. These numbers, while very negative yoy
included some recovery in June 2020. How- Source: Refinitiv Datastream, J. Safra Sarasin, 14.08.2020
ever, we believe the continuously rising covid
infections in EM countries will cause lagging Stimulus policies will likely continue, yet the
consumption in some sectors such as tourism basis of the recovery is still uneven
and hospitality. This represents a hurdle for Chinese GDP growth rebounded in the second
further recovery to pre-covid levels. Already, quarter of 2020 at a positive yoy rate of 3.2%.
some representatives of EM Central Banks The stimulus has boosted industrial produc-
cautioned about the speed of recovery, with tion numbers in the mid-single digit. The li-
GDPs returning to pre-covid levels only in quidity injections by the People’s Bank of
2022. We also highlight the limitations in China of CNY700bn reflect the continued fi-
terms of budget deficits. The resulting deceler- nancial backing expected from Chinese au-
ation in growth will likely increase indebted- thorities. From a retail consumption perspec-
ness levels closer to 100%, as is the case for tive, hopes of significant improvements in the
India. IG rated countries such as Mexico, short term may be dashed by recurrent re-
whose debt/GDP ratios are closer to 60%, are strictions in the hospitality and tourism sec-
showing more controlled budget deficits so tors. This is evidenced by still negative yoy
far. However the extension of the covid eco- growth in Chinese retail consumption for July
nomic disruptions leaves a certain number of 2020 (-1.1).

 Global View | 15
Emerging Markets

PBOC funding boosts underpinned positive non-payment of loans by 3 to 6 months. Thus,
credit impulse for the Chinese economy uncertainty persists regarding the real level
 4
 of loan defaults to be expected. This could
 3 put pressure on smaller banks and on several
 sectors relying on the absence of short term
 2
 debt repayment, to continue to operate.
 1

 0 Asia and CEEMEA make up a rising share of
 defaults so far in 2020
 -1
 EM USD bonds defaults
 -2
 USD bn
 2007 2011 2015 2019 50
 China Credit Impulse
 40
Source: Bloomberg, J Safra Sarasin, 30.06.2020
 30

Corporate bonds defaults are rising mostly in 20

the consumer discretionary sector 10
EM corporate and quasi sovereign defaults
 0
have exceeded the defaults recorded in each 2012 2014 2016 2018 YTD
of 2019 and 2018 so far in 2020. The sector ASIA CEEMEA LATAM
and geographic concentration of defaults is
slightly different from the previous years, Source: Bloomberg, J Safra Sarasin, 17.08.2020
whereby the consumer discretionary sector
has been the most hit versus energy, commu- Inflows in EM corporate hard currency funds
nications and financials. Asia and CEEMEA still resilient, with investors’ positioning on EM
represent also a larger share, whereas previ- bonds still below January 2020 levels
ously it has been mostly the LatAm region that EM hard currency corporate credit retail funds
comprised the larger share of defaults. recorded cumulative inflows of USD 8.9bn be-
 tween June 2020 and August 12th 2020. The
Part of the risky loans may still be hidden be- Fed buying programs continued to drive US
hind short term financial support measures corporate bond spreads tighter, fuelling some
EM banks reporting for the first half of 2020 demand for high quality EM credit. Consider-
recorded significant levels of loan loss provi- ing the significant outflows reported in March
sions, building up reserves for their expected 2020 (USD 24.9bn), we believe that the tech-
non-performing loans (NPLs). NPLs have not nical picture remains favourable for EM hard
grown as much as the levels of reserves, in currency bonds.
part due to supporting measures authorized
by the regulators. These measures extended Walid Bellaha
the typical 90 days limit to recognize NPLs for Emerging Markets Credit Analyst

16 | Global View
Equity Strategy

Equity Strategy

Cyclical equity recovery till end-2020
Monetary and fiscal stimulus have ushered in a cyclical recovery, which should support equity
markets till the end of 2020. China and Japan stand out in terms of economic stimulus and their
strengthening economies will exert a positive pull effect on East Asian equity markets. The digi-
talization of economic activity has accelerated in the post-lockdown world, which boosts demand
for IT hardware and services. We thus recommend to lay the emphasis on IT companies and
cyclical sectors like materials, industrials and consumer discretionary. We favour biotechnology
and medical technology companies while adopting a defensive stance on pharmaceutical com-
panies ahead of the US elections.

Improving indicators boost equity markets and monetary stimulus, which should provide
Equity markets are surfing on the stimulus additional impetus to Asian economic growth
wave that was unleashed by the US, Asia and in the second half of 2020.
the recovery package of the European Union.
Purchasing manager indices in the manufac- While Chinese company earnings will barely
turing and services sectors bounced back into grow in 2020, they are likely to expand sub-
positive territory in most regions in the world stantially in 2021. Real activity indicators like
or are getting close to it. While overall eco- railways freight and seaport cargo volumes
nomic activity will take time to reach pre-pan- should keep firming into year-end. Admittedly,
demic levels, improving economic indicators the rough strategic competition with the US in-
stimulate risk appetite and the demand for eq- volving trade and technology leadership might
uities. Equity investors will keep disregarding trigger some jitters along the way. We expect
elevated valuations as along as earnings ex- Asia Pacific equity markets to perform well in
pectations keep improving. Investors logically the second half of 2020, primarily South Ko-
focus their attention on 2021 earnings esti- rea, Taiwan and Australia. These equity mar-
mates, which implies that a marking-to-mar- kets are geared toward the recovery and the
ket of equity valuations is unlikely to happen technology cycle, and are not directly exposed
before mid-2021. Economic conditions are to US sanctions against China.
likely to keep brightening and earnings expec-
tations rebounding throughout the second half Rebounding PMIs move in sync with rising
of 2020. We expect positive economic mo- earnings revisions
mentum to persist into year-end, which is 50 10
likely to offset less potent risk factors such as 25 5
lingering geopolitical tensions between the US
 0
and China, US presidential election uncer- 0
tainty, and a possible intensification of the -25
 -5
covid-19 epidemic during the autumn. -50

 -75 -10
Asian equity markets take the lead
 -100 -15
China and Japan took effective virus contain-
 2016 2018 2020
ment measures at an early stage, which gave MSCI World - Net earnings revisions
them a lead in terms of economic recovery. World PMI - New orders less order backlog (rhs)
Both nations have also enacted sizeable fiscal Source: Refinitiv Datastream, J. Safra Sarasin, 14.08.2020

 Global View | 17
Equity Strategy

Earnings expectations are stabilizing closely to the aggregate value of US energy,
 Local currency EPS (01.01.2020 = 100) materials, industrials and consumer staple
 110
 companies. This concentrated group mas-
 100 sively outperformed US equities ex IT and even
 easily managed to pull ahead of the Nasdaq
 90
 100 index in past years. While the valuations
 80 of IT companies look rich in absolute and rela-
 tive terms, we expect that they will maintain
 70
 January 1, 2020 April 1, 2020 July 1, 2020 their leadership in 2020.

 S&P 500 Euro Stoxx
 US Big Tech maintains market leadership
 SMI MSCI EM
 Total return in USD (31.12.12 = 100, log scale)
 1000
Source: Refinitiv Datastream, J. Safra Sarasin, 14.08.2020

Covid-19 and economic digitalization
The political reaction to the covid-19 virus
compounds pre-existing digitalization trends
in most economies, while easy monetary pol-
icy and low real bond yields fuel further de- 100
mand for growth stocks. The post-covid-19 2013 2015 2017 2019
 Big-5 Tech equally weighted index
world stokes demand for internet connectivity, Nasdaq 100
video conferencing tools, online retailing as MSCI USA ex IT

well as computing power and data storage ca- Source: Refinitiv Datastream, J. Safra Sarasin, 14.08.2020
pacity. This will reinforce the competitive ad-
vantage of companies implementing digital US presidential election probably no game
business models. changer for US equity markets
 Political uncertainty ahead of a presidential
Digital business models are data and capital election can at times unnerve US equity mar-
intensive, and light in physical assets. Once kets. Yet it tends to decline toward the election
such companies reach a critical mass, they day, usually paving the way for rallying US eq-
reap the benefits of very low marginal costs of uity markets during the 3-6 months following
production, which results in both rising returns the election. At the sector level, we still ob-
on equity and substantial entry barriers serve some typical patterns of sector out- or
against potential competitors. These factors underperformance based on their affinities
foster the emergence of dominant players in with the programs of political parties. Strong
large economies like China and the US. The support for the Republicans usually bolsters
lack of comparable competitors in Europe energy, chemicals, pharmaceuticals and com-
might be ascribed to a more fragmented mar- mercial / investment bank stocks. In contrast,
ket and a less dynamic business culture. expectations of Democrat victory tend to lift
 capital goods, building materials, consumer fi-
Such factors explain why the digital age nance and managed care companies. Yet in
brought about a small number of mega caps 2020, political differences might play a lesser
like Apple, Amazon, Alphabet, Facebook, Mi- role than usual when it comes to equity invest-
crosoft in the US as well as Alibaba, Tencent ments. There is a broadening consensus in fa-
and Baidu in China with clear oligopolistic vour of more government spending in the post-
market power. The Big-5 US technology com- covid-19 environment, be it in the form of
panies make up around USD 5.5 trillion of larger fiscal transfers to consumers or more
market capitalization, which corresponds infrastructure investments. Adopting a tough

18 | Global View
Equity Strategy

stand toward China in trade, technology and Growth stocks thrive thanks to very low real
foreign policies also constitutes one of the few bond yields
points of consensus between US political par- 190 -1.5

ties. If Joe Biden gets elected, some of the cor- -1
 170
porate tax cuts might be rescinded. As the eco-
nomic recovery progresses till year-end, we ex- -0.5
 150
pect cyclical and monetary drivers to play a 0
larger role than political factors.
 130
 0.5

We favour technology and some cyclicals
 110 1
A key feature of the current economic recovery 2019 2020
is the reluctance of investors to commit funds World: Growth vs Value stocks

to value stocks. The outperformance of large US 10 year real Treasury yield (inverted; rhs)

capitalization growth stocks – mainly to be Source: Refinitiv Datastream, J. Safra Sarasin, 14.08.2020
found in the IT / communication services sec-
tors and to a lesser extent in healthcare – Cyclical recovery likely to extend till end-2020
moves closely with US 10 year real bond Monetary and macroeconomic trends are
yields. In spite of sizeable reflation- likely to remain supportive for eq-
ary efforts from central uity markets in the coming
banks and governments, months. The run up to the
value stocks have US elections might
struggled on a rela- cause some jitters
tive basis against «Buy lasting into election
growth stocks. We day. We advise to
thus reiterate our cyclicals in maintain a cyclical
overweight recom- title in a portfolio,
mendation for in- Asia and the mainly through ex-
formation technol- posure to small
ogy companies. We US» caps and Asian eq-
advise to select cycli- uity markets.
cal sectors in regions
with rapidly improving eco- Cédric Spahr
nomic conditions like East Asia Equity strategist
and the US. Among cyclical sectors, we favour
materials, industrials as well as selected con-
sumer discretionary stocks. We notice a lack
of momentum among financials, probably
driven by a rise of non-performing loans im-
pacting banks, and would lean toward stock
picking across banks and insurance compa-
nies. We are generally cautious for pharma
stocks ahead of the US election, and prefer
medical technology and biotechnology compa-
nies in the healthcare space. We see little po-
tential for defensives such as utilities, real es-
tate and consumer staples in the short-term.

 Global View | 19
Vineyard in McLaren Vale, South Australia
Sustainability Focus

Sustainability Focus

What is the carbon footprint of
countries, and how is it calculated?
Climate change is one of the biggest challenges that humanity ever faced. But the global com-
munity is determined to act. As the time for effective action is extremely limited and the conse-
quences of climate change are becoming increasingly apparent across the planet, measures to
combat global warming must be stepped up over the coming years. Climate change – and the
response to it – creates both opportunities and risks for investors. To be able to evaluate these,
one of the factors we analyse is the greenhouse gas emissions of issuers, in an attempt to future-
proof our portfolios. This article explains how the carbon footprint of government bonds is meas-
ured, and what factors need to be taken into account.

International climate policy mainly focuses on three questions above and drawing appropriate
governments and their responsibility, willing- conclusions.
ness and ability to act. In signing up to the
Paris Agreement on climate change, many Scope? Clear boundaries are fundamental
countries have agreed to binding contribu- Although 'carbon footprint' is the most fre-
tions towards reducing greenhouse gases. quently used term, it often refers to the im-
These contributions are nationally deter- pacts of all the relevant greenhouse gases
mined. On the other hand, the financial market that pose an environmental threat. The under-
has historically focused more on the carbon lying principle when assessing the scope of
footprint of companies, and consequently on the footprint for climate change is:
the footprint of equities and bonds. By con-
trast, a vacuum often still exists in the area of As wide-ranging as possible,
government bonds – also regarding interna- as limited as necessary.
tional financial market regulation. Apart from
the risk of drifting into dangerous political wa- To calculate the footprint, greenhouse gases
ters, this raises the following three fundamen- are converted into CO2 equivalents (CO2e),
tal questions, among others: which indicate the greenhouse gas (GHG) po-
 tential. Over a period of 100 years, for exam-
1. What should be the scope of the focus ple, the contribution of methane to the green-
 on greenhouse gases? house gas effect is around 28 times stronger
2. What basis should be assumed for the than carbon dioxide. In other words, a ton of
 financial calculation? methane corresponds to around 28 tons of
3. What is that figure supposed to reveal? CO2e. Whereas all the relevant greenhouse
 gases are basically taken into consideration
As a pioneer in sustainable investment, we also when calculating the carbon footprint of com-
show the way forward in this area by reporting panies, in the case of countries, isolated CO2
on the carbon footprint of the government data are sometimes referenced as well, as
bonds we invest in. In this article we explain they are more up to date.1 However, we advise
how we do this, by providing answers to the using the older, but more extensive green-

1
 See EDGAR, 2020: “CO2 Total Emissions”, 2018 and
 “GHG Total Emissions”, 2015

 Global View | 21
Sustainability Focus

house gas figures, as the difference can be The first variant implies a very narrow govern-
significant between countries. In the case of ment understanding, which means a highly re-
Brazil and Indonesia, for example, carbon di- stricted carbon footprint is measured. The ef-
oxide only accounts for just under half of all fects of the regulations passed by politicians
greenhouse gas emissions, while the figure is are excluded in the calculation, for example.
80% for other countries. The production approach is the most common
 method. It is also applied in international cli-
GHG emissions of selected countries mate policy and measures all greenhouse
(2015, in MtCO2e) gases emitted within the country.
14000 The consumption approach is the most com-
 prehensive method, and adjusts the produc-
12000
 tion approach to allow for exports and imports.
10000
 As a result, the carbon footprint for countries
 that are net importers is higher using the con-
 8000 sumption than the production approach.

 6000
 Our reporting is based on the production ap-
 4000 proach, for a number of reasons:
 1. Data are of high quality and up to date
 2000 2. The approach says the most about the fi-
 nancial transition risk of the country
 0
 3. International recognition – it is the most
 United Kingdom
 Canada

 united States
 Brasil

 Indonesia
 China

 Germany
 India

 Japan
 EU28
 Australia

 France

 Russia

 commonly used approach.

 Greenhouse gas emissions per GDP
 CO2 (2015, tCO2e/1000$)
 Other Greenhouse Gases 0 0.2 0.4 0.6 0.8 1 1.2

 GLOBAL
Source: EDGAR, 2020, J. Safra Sarasin, 2020
 EU28
 Australia
Just as when calculating a company's carbon Brasil
 Canada
footprint, where a distinction is made between
 Kyrgyzstan
direct emissions (Scope 1), energy-related China
emissions (Scope 2) and indirect emissions France
 Germany
(Scope 3), there are also a number of possibil-
 India
ities for setting the boundaries in the case of Indonesia
countries. Here the fundamental questions Japan
 Russia
are the same: Where does the issuer's respon-
 South Africa
sibility stop, and what can they influence effec- Sweden
tively and efficiently? The three most common Switzerland
 United Kingdom
variants for setting the scope in the case of
 United States
countries are:
 Source: J. Safra Sarasin, 2020; EDGAR, 2020
1. Emissions caused by public expenditure
2. All domestic emissions – also known as Calculation basis makes the difference
 the production approach In order to calculate the footprint per invested
3. Import/export-adjusted emissions – dollar, a relative benchmark or calculation ba-
 also known as the consumption ap- sis is needed. While reference can be made to
 proach the total debt or enterprise value in the case of

22 | Global View
Sustainability Focus

companies, this only makes limited sense for Example of GHG reporting at the portfolio
countries. The level of debt per country varies level
enormously, which would distort the footprint GHG (tonCO2eq) per GDP (1000$)
excessively. From an investment perspective, * Relative Portfolio Weights

however, the gross domestic product is a suit- 0.25

able benchmark. The financial risk of govern-
 0.2
ment bonds depends indirectly on a country's
economic performance. From a risk perspec-
 0.15
tive, it therefore also makes sense to consider
a country's GDP as the basis for calculation. 0.1

Portfolio/benchmark weightings are used to 0.05

extrapolate the carbon footprint to a portfolio
 0
and compare it with the benchmark. The for-
 Fund Benchmark
mula is as follows:
 Germany Spain Belgium
 Italy Netherlands Canada
 ′ 
 ∗ France Ireland Chile
 Austria Portugal Finland
 
 Others

What does the footprint actually tell us? Source: J. Safra Sarasin, 2020
The method illustrated here for calculating the
carbon footprint of government bonds deter- In addition, it is also important to understand
mines the carbon intensity of these bonds in that although optimising the portfolio using
the portfolio and compares it with that of the the approach described above minimises the
benchmark. The carbon intensity gives an in- risk, this does not necessarily mean the im-
dication of the transition risk to a global econ- pact is maximised.
omy with low GHG emissions. Countries with a
large footprint present a relatively higher risk Climate analysis is not only about greenhouse
and need to realign their policies more quickly gases: consequences lead to consequences
and invest more. While it is also possible to Last but not least, it should be noted that in
choose a proprietary approach for calculating addition to the actual carbon footprint and the
the carbon footprint of companies, we do not associated transition risk of climate change,
think this makes sense in the case of govern- government bonds obviously present other –
ment bonds. The purpose of the proprietary and in some cases more significant – risks:
approach is to allow investors to determine physical risks such as drought, flooding, heat
which share of a company's carbon footprint waves, extreme weather events and their so-
they are responsible for by virtue of their in- cial and economic consequences. It is im-
vestment. In the case of equities, the easiest portant not to overlook these aspects. We
way to calculate this is through the market have therefore integrated them extensively
capitalisation or enterprise value. In the case into our sustainability rating for government
of corporate bonds, the overall debt or the en- bonds.
terprise value provides the best calculation
basis. This is not very appropriate for countries Nico Frey
because of their vastly different levels of debt. Sustainable Investment Analyst

 Global View | 23
Asset Allocation

Asset Allocation

Recovering, but still not healthy
Jan Bopp has been Senior Investment Strategist with Bank J. Safra Sarasin since 2016. He is a
member of the CIO Office and responsible for providing input to the Investment Committee and
implementing tactical allocation for the mandate profiles. On top of that, he is the author of the
monthly publication “Market Review & Outlook” and writes a regular column for the Swiss busi-
ness newspaper “Finanz und Wirtschaft”. Before joining J. Safra Sarasin in Zurich he worked as
a sell-side asset analyst und currency overlay manager in Frankfurt. Jan Bopp studied business
administration at the Warwick Business School in the UK and the University of Mannheim. We
spoke with him about the most important topics of the day in the field of asset allocation.

 Global View (GV): Mr Bopp, as liquidity is being pumped into the system, will
 people return to work after the that not eventually trigger a spike in inflation?
 lockdown, there has been This certainly cannot be ruled out. Since the
 another spike in the number of global financial crisis, the US Federal Reserve
 Covid-19 cases. Despite this, has been trying to keep inflation at the level of
 global stock markets have re- its target price increase of 2%. And like other
bounded by almost 50 percent in the period central banks, it has had a hard time doing this
March to August. Is this type of behaviour irra- in the past. But in recent months inflation ex-
tional? pectations have risen significantly again. One
That's a very valid question. A historic collapse major problem for investors in this context,
in economic output in the second quarter, cou- however, is persistently low bond yields. Real
pled with a fresh rise in infection rates, seems yields, in other words the difference between
difficult to reconcile with bullish stock mar- nominal yields and inflation rates, have recently
kets. But such behaviour is not entirely irra- fallen to historical lows in some regions. Inves-
tional. First, stock markets price in future de- tors in industrialised nations are now only re-
velopments, and expectations about future ceiving slightly positive real yields on a small
economic performance have recently been group of government bonds from the euro pe-
fairly upbeat. Second – and this is probably riphery and Japan.
the most important aspect – central banks
worldwide are flooding financial markets with GV: So investors in most regions are losing
generous liquidity and holding down interest money after adjustment for inflation if they in-
rates. Yields are close to historical lows. Inves- vest in risk-free government bonds. How can in-
tors ultimately have to accept greater risks to vestors protect themselves from this erosion of
generate reasonable returns. This includes purchasing power?
not only high-yield and emerging-market Whenever inflation is mentioned, investors
bonds, but also equities. tend to think of the stagflation experienced
 back in the 1970s. This is a combination of a
GV: You've already mentioned the extensive sharp rise in inflation rates and weak economic
monetary policy measures. The US Fed has re- growth. Admittedly this is a very unwelcome
cently confirmed that it is prepared to take ad- scenario, but fortunately it has not recurred
ditional measures if needed. If so much since. But even in this environment, our classi-

24 | Global View
Asset Allocation

cally diversified portfolio of 60% equities and ponent has always been missing which is cru-
40% bonds still seems a very robust solution. cial for the long-term survival of the community
 values: fiscal union. That's now changed.
GV: So are you saying that a diversified portfo-
lio already provides adequate inflation protec- GV: So do you think that marks a decisive turn-
tion? ing point?
The historical data at least confirm that to be The economic stimulus package agreed by EU
the case. However, the individual asset clas- leaders is at least a potential turning point for
ses do not contribute to the same extent. Dur- the community as a whole. Significant progress
ing stagflation in the 1970s, equities gener- in fiscal integration, together with a credible
ated a real yield (i.e. after deducting inflation) ECB policy, could lead to a rerating of the euro
of 0.3% p.a. And it makes intuitive sense that area vis-a-vis the US, encouraging a rise in in-
this asset class is a good hedge against infla- vestment volumes. In addition, the region is
tion. Equities are claims on real assets, and likely to benefit especially from the continuing
real assets will increase in value as the gen- global recovery because of its heavily cyclical
eral price level rises. Long-dated bonds, on the sectors.
other hand, are negatively affected by rising in-
flation rates, since a rise in the price level is GV: We are about to enter the last quarter of a
usually accompanied by higher interest rates, very eventful year. What surprises do you think
which in turn weighs on bond prices. are in store for us?
 Obviously investors will increasingly turn their
GV: What about gold? attention to the US presidential election. We ba-
Gold has performed very well during the stagfla- sically take a constructive view on the develop-
tion period. But this scenario has only occurred ment of the economy. It appears to be on the
very rarely in the past, as already mentioned. road to recovery, but is still a long way from be-
We therefore studied the performance of gold ing healthy. The virus is going to be with us at
more closely against a backdrop of different least until 2021, so the risk of further setbacks
scenarios. We found that the precious metal is still high.
performs very well in times of crisis, both in
terms of the yield and diversification it offers. GV: What effect does this environment have on
On the other hand, gold does not provide an ef- your investment strategy?
ficient hedge against rising inflation, either in So far it has been a truly exceptional year on fi-
the short or long term. nancial markets – and also a very instructive
 one. Ultimately, however, the massive volatility
GV: In July, the European Union managed to on financial markets has once again validated
agree on a common rescue fund after very pro- our approach: a coherent investment strategy
tracted negotiations. What's your view of this with a long-term horizon is needed to success-
development? fully navigate such choppy waters. Disciplined
I share the widespread criticism that the Euro- rebalancing of the portfolios and a stock/sector
pean economic and monetary union has been a selection that mirrors the economic climate are
dysfunctional currency bloc for some time. crucial for investing successfully during phases
Aside from the strong political commitment to of market volatility.
create a united Europe in response to the dam-
age caused by a century of wars, one key com- GV: Thanks for talking to us, Mr Bopp.

 Global View | 25
Market & Forecast Overview

Market & Forecast Overview

Market & Forecast Overview

Macroeconomic Forecasts
In % 2019 2020 2021
USA Economic growth ch an. 2.2 -5.8 5.2
 Inflation ch av. 1.8 0.9 1.3
Euroland Economic growth ch an. 1.2 -7.8 7.6
 Inflation ch av. 1.2 0.5 0.6
Switzerland Economic growth ch an. 1.2 -5.4 5.4
 Inflation ch av. 0.4 -0.7 0.1
UK Economic growth ch an. 1.4 -10.3 8.6
 Inflation ch av. 1.8 1.1 1.3
Japan Economic growth ch an. 0.8 -4.6 4.4
 Inflation ch av. 0.5 0.3 0.5
China Economic growth ch an. 6.1 1.6 7.6
 Inflation ch av. 2.9 2.6 1.7
Source: Macrobond, J. Safra Sarasin, 26.08.2020

Policy rate forecasts in %
 26.08. 4Q20 2Q21 4Q21
US Fed Funds 0.25 0.25 0.25 0.25
EUR depo rate -0.50 -0.50 -0.50 -0.50
CHF SARON -0.72 -0.75 -0.75 -0.75
BoE base rate 0.10 -0.10 -0.10 -0.10
JP O/N call rate -0.05 -0.10 -0.10 -0.10
Source: Macrobond, J. Safra Sarasin, 26.08.2020

10 year bond yield in %
 26.08. 4Q20 2Q21 4Q21
USA 0.67 0.90 1.20 1.25
Germany -0.45 -0.35 -0.25 -0.20
Switzerland -0.53 -0.50 -0.40 -0.35
UK 0.26 0.35 0.35 0.40
Japan 0.04 -0.05 0.00 0.00
Source: Datastream, J. Safra Sarasin, 26.08.2020

FX-Forecasts
 26.08. 4Q20 2Q21 4Q21
EUR-CHF 1.07 1.07 1.05 1.05
EUR-USD 1.18 1.20 1.23 1.25
EUR-GBP 0.89 0.95 0.92 0.92
USD-JPY 106.0 105.0 102.0 100.0
USD-CHF 0.91 0.89 0.85 0.84
USD-CNY 6.89 6.90 6.85 6.80
Source: Macrobond, J. Safra Sarasin, 26.08.2020

26 | Global View
Market & Forecast Overview

Stock index price forecasts
 26.08. P/E ratio Dec-20 Dec-21
USA
S&P 500 3’479 23.2 3’600 3’800
Nasdaq 100 11’972 26.6 12’500 14’000
Europe
FTSE 100 6’046 10.6 6’400 6’600
DJ Euro Stoxx 50 3’357 14.0 3’600 3’800
DAX 13’190 14.7 14’000 15’000
SMI 10’310 17.2 10’750 11’500
SPI 12’854 18.4 13’750 15’000
SMIM (Swiss Mid-Caps) 2’636 15.5 2’800 3’000
Japan
MSCI Japan 987 13.0 1’050 1’125
Emerging Markets
MSCI EM 1’119 12.4 1’200 1’300
MSCI China 102 14.1 110 125
Source: Datastream, J. Safra Sarasin, 26.08.2020

Equity Strategy Asset Allocation
 Regions Sectors Asset Classes Position

 Bonds =
 USA Overweight Industrials
 China Information Technology Government Bonds ––

 EM Communication Services IG Corporate Bonds ++

 High Yield Bonds +

 EM Bonds +
 Euroland Neutral Energy
 Japan Materials Equities –
 Consumer Discretionary
 Developed Markets =
 Banks
 Insurance Emerging Markets =
 Real Estate
 Liquidity =/+

 Alternatives +
 Switzerland Underweight Consumer Staples Convertible Bonds =
 UK Health Care
 Other Alternatives +
 Utilities

Source: J. Safra Sarasin, 26.08.2020 Source: J. Safra Sarasin, 26.08.2020

 Global View | 27
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