HORIZON April 2020 - Berenberg
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
HORIZON The Berenberg Capital Markets Outlook Wealth and Asset Management April 2020
Horizon Handout – Capital Market Outlook Disclaimer This document is a marketing communication. This information and references to issuers, financial instruments or financial products do not constitute an investment strategy recommendation pursuant to Article 3 (1) No. 34 Regulation (EU) No 596/2014 on market abuse (market abuse regulation) nor an investment recommendations pursuant to Article 3 (1) No. 35 Regulation (EU) No 596/2014, both provisions in connection with section 85 (1) of the German Securities Trading Act (WpHG). As a marketing communication this document does not meet all legal requirements to warrant the objectivity of investment recommendations and investment strategy recommendations and is not subject to the ban on trading prior to the publication of investment recommendations and investment strategy recommendations. This document is intended to give you an opportunity to form your own view of an investment. However, it does not replace a legal, tax or individual financial advice. Your investment objectives and your personal and financial circumstances were not taken into account. We therefore expressly point out that this information does not constitute individual investment advice. Any products or securities described may not be available for purchase in all countries or only in certain investor categories. This information may only be distributed within the framework of applicable law and in particular not to citizens of the USA or persons resident in the USA. The statements made herein have not been audited by any external party, particularly not by an independent auditing firm. The statements contained in this document are based either on the company’s own sources or on publicly accessible third-party sources, and reflect the status of information as of the date of preparation of the presentation stated below. Subsequent changes cannot be taken into account in this document. The information given can become incorrect due to the passage of time and/or as a result of legal, political, economic or other changes. We do not assume responsibility to indicate such changes and/or to publish an updated document. Past performance, simulations and forecasts are not a reliable indicator of future performance and custody fees may occur which can reduce overall performance. Please refer to the online glossary at www.berenberg.de/glossar for definitions of the technical terms used in this document. Date: 26 March 2020. 2
Table of contents
01 Overview of capital markets outlook and asset allocation 4
Equity exposure reduced to neutral.
02 Economics 9
Coronavirus recession: deep but temporary.
03 Equities 14
Marked increase in relative attractiveness.
04 Bonds 20
Winners and losers of the coronavirus crisis.
05 Commodities 26
Virus-weakened prospects beyond gold.
06 Currencies 29
Coronavirus hits currency markets hard.
An online glossary with definitions of technical terms is available at www.berenberg.de/en/glossary
3Overview of capital
01 markets outlook and
asset allocation1 2 3 4 5 6 Overview of capital markets outlook and asset allocation
Concise overview of capital markets
Performance review
Performance of selected asset classes
Total return of asset classes in the last 4 weeks, year to date and over 5 years (%, EUR)
4-week & YTD 12-month periods over that last 5 years
4W (25/02/20 - 24/03/20) 24/03/19 24/03/18 24/03/17 24/03/16 24/03/15
YTD (31/12/19 - 24/03/20) 24/03/20 24/03/19 24/03/18 24/03/17 24/03/16
0.9
USDEUR 3.9 4.8 9.3 -12.6 3.5 -2.2
0.8
Gold 11.9 30.3 6.6 -5.3 5.8 -0.3
0.0
Eonia -0.1 -0.4 -0.4 -0.4 -0.3 -0.2
-2.1
EUR Sovereign Bonds -0.9 0.9 1.5 1.5 -0.5 1.6
-8.5
EUR IG Bonds -7.2 -4.2 2.2 1.9 2.3 0.4
-11.5
EM Hard Currency Bonds -9.5 -2.8 4.1 4.0 9.1 3.3
-17.7
Topix -21.1 -12.4 3.7 1.6 22.7 -9.9
-20.7
S&P 500 -20.6 -6.4 20.8 -1.6 21.8 -2.9
-23.1
MSCI Emerging Markets -24.7 -18.5 1.4 8.1 26.2 -16.8
-24.0
Euro Stoxx 50 -27.3 -15.7 3.0 -1.9 18.8 -18.0
DAX -24.2 -14.6 -4.4 -1.5 22.5 -17.9
-26.8
-43.4
Brent -50.8 -45.8 8.7 20.7 12.5 -40.7
S&P 500: S&P 500 TR (US equities); Euro Stoxx 50: Euro Stoxx 50 TR; DAX: DAX TR (German equities); Topix: Topix TR (Japanese equities);
MSCI Emerging Markets: MSCI EM NR (EM equities); EUR Sovereign Bonds: IBOXX Euro Eurozone Sovereign 1-10 TR; EUR IG Bonds: IBOXX Euro Corporates Overall TR;
EM Hard Currency Bonds: Barclays EM Hard Currency Agg Govt Related TR; Gold: Gold US Dollar Spot; Brent: Bloomberg Brent Crude Subindex TR;
Eonia: Eonia Capitalization Index; USDEUR: USDEUR: Price of 1 USD in EUR. All return data are calculalated in EUR.
Sources: Bloomberg, Berenberg. Time period: 24/03/2015 – 24/03/2020
Note: The historical performance presented here is not a reliable indicator of future performance .
51 2 3 4 5 6 Overview of capital markets outlook and asset allocation
Concise overview of capital markets
Outlook by asset classes
Economics
• Economy: The drastic measures against the corona pandemic cause the economy to collapse worldwide.
• Governments and central banks are stepping up their efforts to counter the temporary economic slump.
• At least in China, the economy is picking up again after the wave of infection has been contained.
Equities
• Stock market already pricing in mild recession scenario. Relative attractiveness compared to bonds has increased significantly.
• Earnings estimates still too high. We expect negative earnings growth in 2020.
• We have slightly increased equities, pre-empted the monthly benchmark rebalancing and are temporarily overweight.
Bonds
• Yields on safe government bonds have fallen massively as the coronavirus has spread.
• Investors reduced credit risk, which led to rising risk premiums, especially on high-yield bonds.
• We slightly underweight bonds in the multi-asset portfolio and keep duration relatively short.
Alternative investments / commodities
• Gold remains attractive as a hedge and benefits from low real interest rates and lower bond yields.
• Crude oil punished twice over by corona pandemic and OPEC fiasco. Massive oversupply imminent.
• Industrial metals have experienced losses. However, relatively stable given the strong sell-off of cyclical stocks.
Currencies
• The euro has had a brief surge to USD 1.14 per euro and is now falling back to 1.08.
• The euro has risen strongly against the British pound, peaking at 0.94 pounds per euro. Now it is heading back towards 0.90.
• The Swiss franc is doing what is expected of it in times of crisis: it is rising - to its highest level since 2015.
61 2 3 4 5 6 Overview of capital market outlook and asset allocation
Concise overview of Berenberg's asset allocation
Current positioning within asset classes
Portfolio positioning of a balanced mandate at a glance
EQUITIES BONDS ALTERNATIVE INVESTMENTS
– + – + – +
Europe Euro Government Bonds Gold / Precious Metals
Germany Core Eurozone
Other AI
United Kingdom Eurozone Periphery
Rest of Europe Euro Corporate Bonds
US EUR Investment Grade ex-Financials
LIQUIDITY
EUR Investment Grade Financials
Out of Benchmark – +
Japan
Out of Benchmark
Covered Bonds
Emerging Markets
Inflation-Linked Bonds
CURRENCIES
EUR High Yield
US Government Bonds These positions apply at portfolio level
USD Investment Grade
EUR
USD High Yield
Current weight deviation from the benchmark allocation Emerging Market Bonds
USD
for multi-asset strategies denominated in EUR
(schematic representation)
Duration
GBP
– Underweight Neutral + Overweight
short long
Source: Berenberg. As of 25/03/2020.
71 2 3 4 5 6 Overview of capital market outlook and asset allocation
Concise overview of Berenberg's asset allocation
Review of Core Strategy 3
Management of the equity allocation of a balanced multi-asset mandate since inception
Performance 24/03/15 - 24/03/16 24/03/16 - 24/03/17 24/03/17 - 24/03/18 24/03/18 - 24/03/19 24/03/19 - 24/03/20
equity benchmark -13.30% 17.76% -3.37% 12.62% -11.35%
75% 130
70% 125
65% 120
60% 115
55% 110
50% 105
45% 100
40% 95
35% 90
30% 85
25% 80
Oct. 17 Dec. 17 Feb. 18 Apr. 18 Jun. 18 Aug. 18 Oct. 18 Dec. 18 Feb. 19 Apr. 19 Jun. 19 Aug. 19 Oct. 19 Dec. 19 Feb. 20
Equity allocation CS 3 Equity allocation (Min/Neutral/Max) Performance equity benchmark* (29/09/2017 = 100; Right Scale)
Sources: SimCorp, Bloomberg, Berenberg. *The "equity benchmark" is 70% STOXX Europe Net Return Index and 30% S&P 500 Net Return Index. Time period: 24/03/2015 – 24/03/2020.
Note: The historical performance presented here is not a reliable indicator of future performance.
• In the summer of 2019, we positioned our portfolio defensively due to the escalation of the trade war between the USA and China,
further trade conflicts and a lack of economic recovery. We underweighted equities in multi-asset strategies and, as a consequence,
increased our positions in US government bonds and gold as hedges.
• Since September, we have again selectively built up riskier positions in our portfolio and started with a moderate overweight in 2020.
• Most recently, in light of the major economic risks posed by the coronavirus, we have positioned ourselves close to the strategic
allocation and only very selectively seized opportunities. A high liquidity position allows us to react when the corona wave begins to
abate. Risks and opportunities are balanced in the short term. Although a significant decline in corporate profits is now inevitable, this
has been largely priced in. In addition, equities have become relatively more attractive thanks to the decline in bond yields and massive
8 monetary and fiscal policy stimuli.02 Economics
1 2 3 4 5 6 Economics
Eurozone
GDP and inflation
Sharp economic downturn ECB significantly expands purchase program
• The measures against the corona infection wave bring • The ECB is providing massive amounts of additional
extreme uncertainty about the economic consequences. liquidity. Under the TLTRO III program, borrowers can,
Italy has been hit particularly hard. The EU is under certain conditions, borrow money from the central
suspending the rules of the Stability Pact due to the bank at an interest rate of -0.75 % . Last week, the ECB
crisis and the ECB is giving the states maximum support also decided on a further, very comprehensive
for their fiscal packages. expansion of the bond purchase program by at least
• As expected, sentiment indicators are slumping. In the another 750 billion euros by the end of the year.
current situation, however, hard economic data is more • The economic shock is also having an effect on the price
important than sentiment indicators, because sentiment front: for 2020 we expect inflation to be only 1.0 %.
indicators only reflect what the financial markets have
already priced in.
Eurozone GDP growth and economic sentiment Eurozone inflation
6
6 120
120 5 5
6 120
4
4 110
4 110
110 4 4
2
2
2 100
100
100 3 3
points
0
points
0
inininpoints
0
%%
90
ininin%
90
90 2 2
-2
-2
in %
-2
80
80 1 1
-4 80
-4
-4
-6 70
70 0 0
-6
-6 70
-8
-8 60
60 -1 -1
-8 60
Mar
Mar 99
99 Mar
Mar 04
04 Mar
Mar 09
09 Mar
Mar 14
14 Mar
Mar 19
19 Jan 99 Jan 04 Jan 09 Jan 14 Jan 19
Mar 99 Mar 04 Mar 09 Mar 14 Mar 19
GDP
GDP growth
growth (yoy)
(yoy) economic
economic sentiment
sentiment (right-hand
(right-hand scale)
scale)
GDP growth (yoy) economic sentiment (right-hand scale) CPI (yoy) Core CPI (yoy)
Sources: Eurostat, European Commission Time period: 26/02/1999 – 28/02/2020 Source: Eurostat Time period: 31/01/1999 – 29/02/2020
101 2 3 4 5 6 Economics
USA
GDP and inflation
Massive fiscal policy response Fed with comprehensive package of measures
• The political parties have agreed on a fiscal package • In another emergency meeting, the Fed lowered the key
worth around two trillion dollars. Direct payments to interest rate to 0.00 - 0.25 %. It also announced
citizens are also to be included as unconventional extensive liquidity injections and unlimited market
instruments. These measures are necessary because interventions. The monetary policy response is even
the USA does not have a close-meshed social system. more decisive than during the Lehman crisis.
• The economic slump is clearly reflected in the data. The • In January, inflation had risen to 2.5%. However, the
Philadelphia Fed Index literally collapsed. The index price increase is now a waste of time. Because of the
reacted with the sharpest monthly decline in its history corona crisis and the resulting weakness in demand,
and slumped to - 12.7 points. Given the situation, inflation will decline noticeably. For the year 2020 as a
however, a historical slump is no surprise. whole, we expect an inflation rate of only 0.7 %.
US GDP growth and Purchasing Managers Index US inflation
6 80 6 6
4 70
2 60 3 3
0 50
in points
in %
in %
-2 40 0 0
-4 30
-6 20 -3 -3
Dec 99 Dec 04 Dec 09 Dec 14 Dec 19 Jan 99 Jan 04 Jan 09 Jan 14 Jan 19
GDP growth (yoy) ISM manufacturing (right-hand scale) CPI (yoy) Core CPI (yoy)
Sources: BEA, ISM Time period: 31/12/1999 – 28/02/2020 Source: BLS Time period: 31/01/1999 – 29/02/2020
111 2 3 4 5 6 Economics
China
GDP and inflation
Infection rate apparently stabilizing We temporarily suspend forecasts for China
• Now that the infection rate has stabilized according to • After the inflation rate had levelled off at around 2.8 %
official figures, the economy is to be gradually ramped (year-on-year comparison) in the previous months,
up. China could thus send a positive signal to the prices have been rising considerably since September
Western countries, which are just at the beginning of the last year. The main reason for this is the sharp rise in
epidemic. food prices. For February 2020, the inflation rate on an
• Industrial production in January/February fell by 13.5% annual basis is 5.2 %.
yoy, while retail sales fell by more than 20%. These • Due to the unforeseeable consequences and the very
figures are not surprising, however, given the "shutdown" unreliable Chinese data, we are temporarily suspending
and anecdotal evidence on the situation in China in our forecasts for China.
January/February.
Chinese GDP growth and Purchasing Managers Index Chinese inflation (YoY)
16 60 25 25
20 20
14 55
15 15
12 50
10 10
In points
in %
10 45
5 5
In %
8 40
0 0
6 35 -5 -5
4 30 -10 -10
Mar 05 Mar 07 Mar 09 Mar 11 Mar 13 Mar 15 Mar 17 Mar 19 Mar 05 Mar 07 Mar 09 Mar 11 Mar 13 Mar 15 Mar 17 Mar 19
GDP growth (yoy) PMI manufacturing (right-hand scale) CPI (yoy) CPI food price (yoy)
Sources: NBS, CFLB Time period: 31/03/2005 – 28/02/2020 Source: NBS Time period: 31/03/2005 – 29/02/2020
121 2 3 4 5 6 Economics
Economic forecasts
Most important estimates at a glance
GDP growth (in %) Inflation (in %)
2019 2020 2021 2019 2020 2021
Ø** Ø** Ø** Ø** Ø** Ø**
USA 2.3 2.3 -2.3 1.3 1.4 1.9 1.8 1.8 0.7 1.8 1.5 2.1
Eurozone 1.2 1.2 -3.5 0.4 2.3 1.4 1.2 1.2 1.0 1.0 0.9 1.4
Germany 0.6 0.6 -3.2 0.2 2.3 1.3 1.4 1.4 1.0 1.2 1.6 1.5
France 1.2 1.2 -2.7 0.4 2.7 1.5 1.3 1.3 1.2 1.2 1.4 1.4
Italy 0.3 0.2 -4.9 -1.7 2.6 0.9 0.6 0.6 0.6 0.5 0.9 0.9
Spain 2.0 2.0 -3.4 1.4 2.7 1.7 0.8 0.8 0.7 0.9 1.0 1.4
United Kingdom 1.4 1.3 -2.0 0.4 2.4 1.4 1.8 1.8 0.9 1.4 0,9 1.8
Japan 0.7 1.0 -3,6 -0.6 -0.9 1.1 0.5 0.5 -0.1 0.5 0.9 0.6
China 6.2 6.1 N.A. 5.2 N.A. 5.8 2.9 2.9 N.A. 3.2 N.A. 2.2
World* 2.4 3.0 -0.6 2.6 2.3 3.1 - 3.0 - 2.9 - 2.8
Source: Bloomberg, Berenberg as of 24/03/2020.
* At actual exchange rates, not purchasing power parity; PPP would give more weight to the fast-growing emerging-market countries.
** Average of estimates of other experts (Bloomberg); consensus.
1303 Equities
1 2 3 4 5 6 Equities
Market developments
Volatile bottoming
Stock market already pricing in mild recession scenario
• The spread of the coronavirus and the oil price war following the failure of the "OPEC+" talks have led to massive market
distortions. The S&P 500 has fallen by more than 30% from its peak. It recorded the first bear market since the financial crisis
- and at record speed. At times, Brent oil fell more than 30% in one day, stock indices saw daily losses of more than 10% and
credit spreads skyrocketed.
• When will the market find a bottom? In our opinion, there must be four P's: positioning, profitability, policy support and panic.
Positioning in risk assets is now low for many investor groups. Policy support is gradually coming from central banks and
governments. An element of panic has definitely been there. As far as profitability is concerned, analysts are still too
optimistic. However, the market is already pricing in a mild recession. We should be slowly approaching a volatile bottom.
Performance of selected equity indices
180 180
160
160
140
140
120
120
100
100
80
60 80
Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20
DAX S&P 500 MSCI EM STOXX Europe 50
Source: Bloomberg; performance scaled to 100. Time period: 24/03/2015–24/03/2020.
151 2 3 4 5 6 Equities
Corporate profits
We expect negative earnings growth for 2020
Strongly negative earnings revisions Earnings should fall significantly in 2020
• In line with the rising number of profit warnings, analysts • Coronavirus has already rendered the economic
have recently downgraded their profit estimates across forecasts from the beginning of 2020 obsolete. The
all regions. On aggregate, emerging markets have seen consensus expectation had been that the global
the strongest earnings downgrades in the last month economy will accelerate over the course of the year.
under the pressure of the coronavirus outbreak and the Instead, we are now seeing deep recessions in many
resulting weakness of commodities. regions and especially in Europe.
• Within emerging markets, analysts have downgraded • We expect global corporate earnings in 2020 to fall
profit estimates for eastern European companies the significantly compared to the previous year. Currently,
most. the consensus expectation is still for earnings growth of
around 1%.
Eastern Europe with strongest downward revisions Profit expectations for 2020 too high
5 30
0 20
-5 10
-10 0
-15 -10
-20
-20
-30
-25 Emerging Markets
World
Industrialised Nations
APAC ex Japan
Switzerland
Japan
Latin America
US
Germany
Eurozone
Europe
UK
Eastern Europe
-30
Industrialised
World
Emerging Markets
Switzerland
Japan
US
APAC ex Japan
Eurozone
Europe
Germany
UK
Latin America
Eastern Europe
Nations
2020 Consensus Earnings Growth (y/y, in %) 2021 Consensus Earnings Growth (y/y, in %)
1M changes … 3M changes to consensus earnings estimates for the next 12 months
Source: FactSet. As of 24/03/2020. Source: FactSet. As of 24/03/2020.
161 2 3 4 5 6 Equities
Valuations
Marked increase in relative attractiveness
There is no liquid alternative to equities Recession already priced in
• Relative to bonds, equities have become even more • While the stock market largely anticipated an economic
attractive. The yield of 10-year US Treasuries dipped recovery for this year at the end of last year, it is now
below 1% for the first time in March. And even the yield pricing in a recession as a result of the corona pan-
of 30-year US Treasuries has fallen below the dividend demic.
yield of the S&P 500. In many countries around the
• Ambitious optimism gave way to realistic pessimism.
world, the expected dividend yield of their equity markets
This limits further disappointments and creates potential
has risen above the yield of their 10-year government
for positive surprises if the economic consequences of
bonds.
the coronavirus are milder than currently feared or if the
economy recovers quickly after the wave has abated.
Most regions are relative attractive Stock market already pricing in mild recession scenario
8 60% 65
7
40% 60
6
5 20% 55
4 0% 50
3
-20% 45
2 Pattern in the next
10 months assuming
1 -40% 40
unchanged equity
0 market
-60% 35
-1 2000 2004 2008 2012 2016 2020
US Germany Italy UK Japan China
Dividend Yield (%) 10-Year Goverment Bond Yield (%) Gap (pp) MSCI World TR (% performance yoy; lhs) Global Manufacturing PMI (rhs)
Source: Bloomberg, own calculations As of 24/03/2020. Source: Bloomberg, own calculations Time period: 31/12/1999 – 31/12/2020.
171 2 3 4 5 6 Equities
Equity allocation
UK least preferred
USA United Kingdom Europe ex UK Emerging markets
Neutral Underweight Overweight Overweight
• US equities are supported by • The forthcoming negotiations of • The easing of the trade conflict • We expect the USD to weaken
share buyback programs and the a trade agreement between the and cautious positioning of and the global economy to
greater maneuvering room for UK and the EU are likely to international investors speak for recover slightly later in the year.
the Fed. Moreover, the sector make some negative headlines. Europe. This and the partial agreement
structure is less cyclical than in Neither party is likely to be • Equity valuations are cheaper in the trade dispute should
Europe or emerging-market quick to compromise. than in the US and offer upside support emerging markets.
countries. In the meantime, the potential in the medium term, • Asian emerging markets above
risk of a leftist-progressive US especially compared to bonds. all are receiving substantial
President such as Bernie support from the stimulus
Sanders has also lessened. measures of regional
• Within the equity regions, US governments and central bank.
equities are also the most
ambitiously priced.
181 2 3 4 5 6 Equities
Equity market forecasts
Estimates for selected indices
Current Ø*
Index forecasts 24/03/2020 31/12/2020 30/06/2021 in 12 months
S&P 500 2,447 2,900 3,100 3,410
Dax 9,701 11,500 12,500 13,892
Euro Stoxx 50 2,715 3,150 3,400 3,858
MSCI UK 1,555 1,850 2,000 2,112
Index potential (in %)
S&P 500 - 18.5 26.7 39.3
Dax - 18.5 28.9 43.2
Euro Stoxx 50 - 16.0 25.2 42.1
MSCI UK - 19.0 28.6 35.8
Source: Bloomberg, Berenberg, as of 24/03/2020.
*Average based on bottom-up estimates.
1904 Bonds
1 2 3 4 5 6 Bonds
Market developments
Interest rates and yields
Central Banks in maximum crisis mode Yields highly volatile
• The Fed has already made two unscheduled interest • The increasing fear of the consequences of the
rate cuts. In addition, it is offering far-reaching liquidity coronavirus is omnipresent. This initially drove bond
injections and has indicated that it will intervene in the prices to record highs.
market without limit if necessary.
• Yields on the 10-year federal bond jumped to over
• The BoE lowered its key rate again to 0.1 % and -0.2 % shortly thereafter, but were again brought down
announced a historic bond purchase program. by the ECB measures.
• The ECB announced its own emergency pandemic • The interest rates of the American counterparts were at
program. By the end of the year, it will use at least a times below 0.5%, marking an all-time low. After yields
further EUR 750 billion for bond purchases in addition to broke out to over 1.2 % during the market panic, they
the volumes already agreed. Moreover, it has relaxed its were brought down again by the Fed's measures.
issuer limit and the requirements for purchase objects.
Base interest rates Comparison of the yields of 10-year government bonds
7 7 4 4
6 6
3 3
5 5
4 4 2 2
3 3
in %
in %
2 2 1 1
1 1
0 0
0 0
-1 -1 -1 -1
Feb 99 Feb 04 Feb 09 Feb 14 Feb 19 Mar 10 Mar 12 Mar 14 Mar 16 Mar 18 Mar 20
ECB Fed Germany USA
Source: Bloomberg Time period: 01/02/1999 – 20/03/2020 Source: Bloomberg Time period: 20/03/2009 – 20/03/2020
211 2 3 4 5 6 Bonds
Government bonds
Safe government bonds sought as refuge
Government bonds emerge as winners Winners become losers
• Unsurprisingly, top-rated government bonds proved to be • We have revised our yield forecasts slightly downwards,
the big winners of the global uncertainty. US Treasuries but the message is clear: as soon as the uncertainties
were in particular demand, as they benefited from the subside, the winners of the current crisis will become
Fed's interest rate cuts in addition to their "safe haven" losers.
status. The yield on ten-year US bonds has fallen by
• In the eurozone, papers from Spain and Portugal are still
around 1.1 percentage points since the beginning of the
comparatively interesting. Yields there have risen,
year and has now reached a historic low of 0.31%.
resulting in higher risk premiums compared with Bunds
• German Bunds also posted strong gains. The yield on and making these countries relatively more attractive. To
ten-year bonds fell to a low of -0.91%. be on the safe side, however, we are avoiding Italy.
Yields very volatile recently Government bonds: Prices fall after the crisis
4.0 German Bunds US Treasuries UK Gilts
3.5 10%
3.0 8%
2.5
6%
2.0 IT: 1.57%
1.5
4%
1.0 US: 0.85% 2%
0.5 UK: 0.48% 0%
0.0
FR: 0.19% -2%
-0.5
DE: -0.32%
-1.0 -4%
2015 2016 2017 2018 2019 2020 Total Return (5Y) 9.1% 22.0% 19.1%
Germany (EUR) France (EUR) Italy (EUR) Total Return (TR) 2019 Total Return (TR) YTD
UK (GBP) US (USD) TR until 31/12/2020 "Berenberg" TR until 31/12/2020 "Consensus"
Source: Bloomberg, 10-year government bonds. Time period: 01/01/2015–24/03/2020 Source: Bloomberg Time period: 24/03/2015 - 24/03/2020
221 2 3 4 5 6 Bonds
Corporate bonds
Still too early for higher risks
Turbulent start to the year Emerging market bonds partly attractive
• The start of the year was turbulent. At -7.5% relative to • Emerging market bonds could not escape the oil price
government bonds, European high-yield bonds posted war and recession fears. The result was a massive
the largest weekly loss in the last eleven years. widening of risk premiums. In addition, explicit attention
• At the corporate level, the next few quarters are likely to must be paid to idiosyncratic risks both in the currency
see clearly noticeable braking effects. We are therefore area and in the segment of emerging markets with
positioning ourselves cautiously for the time being and weaker credit ratings.
are avoiding issuers from the automotive, tourism and • We prefer lower-volatility hard currency bonds in the
airline sectors. By contrast, we favour defensive investment grade segment to their counterparts in the
segments such as utilities, telecommunications and high-yield segment. We consider the current spreads for
financials. government bonds in hard currencies to be fair and, in
the case of corporate bonds, even attractively priced.
EUR high yield: biggest relative loss since 2008 Emerging market bonds suffer from high outflows
8.0 6,000
Weekly Excess Return in %
4,000
6.0
2,000
4.0
mn USD 0
2.0
-2,000
0.0 -4,000
-2.0 -6,000
-4.0 -8,000
-6.0
-8.0
2008 2010 2012 2014 2016 2018 2020 Hard Currency (HC) Local Currency (LC)
4-Week Ø HC 4-Week Ø LC
Source: Bloomberg, Weekly performance of Time period: 13/03/2008–13/03/2020 Source: J.P. Morgan, CW = calendar week Time period: 01/01/2018-13/03/2020
EUR high yield versus EUR government bonds
231 2 3 4 5 6 Bonds
Capital market strategy
Bonds
Core segments Other segments
Government bonds & covered bonds Emerging-market bonds
Underweight Overweight
• Volatility could stay high due to (trade) political risks. Bonds will • Emerging-market bonds are still strategically attractive
remain in demand during risk-off phases. due to higher yields and economic catch-up potential. In
particular frontier market bonds are appealing to us.
• We expect bond yields to rise modestly in the medium term even
though the central banks low interest-rate policy will probably • Moreover, a looser monetary policy in the United States
continue. Durations should still be kept moderate because and Europe has enhanced the relative appeal of
interest rate risks are not adequately compensated at the current emerging-market countries.
level of historically low interest rates.
• The setbacks caused by the coronavirus could offer
• US Treasuries offer more attractive yields and seem suitable to attractive buying opportunities.
us as a hedge against political and growth risks in a portfolio
context.
Corporate bonds High-yield bonds
Neutral Underweight
• The loose monetary policy and low yields on government bonds • The relatively high debt of US companies and the
make us prefer corporate bonds to government bonds. danger of a global recession make US dollar high yield
bonds unattractive.
• Within the segment of corporate bonds, we prefer short-term to
medium-term investment horizons with a defensive character to • We remain invested in European high-yield bonds, but
keep spread and duration risks at a moderate level. are positioning ourselves apart from the usual plain
vanilla securities.
241 2 3 4 5 6 Bonds
Forecasts
Estimates for selected bond markets
24/03/2020 31/12/2020 30/06/2021
Base interest rates and
government bond yields (in %)
Current Ø* Ø*
USA
Base interest rate 0.00-0.25 0.00-0.25 0.55 0.00-0.25 0.70
10Y US yield 0.85 1.00 1.14 1.00 1.40
Eurozone
Base interest rate 0.00 0.00 0.00 0.00 0.00
10Y Bund yield -0.33 -0.30 -0.42 -0.10 -0.27
United Kingdom
Base interest rate 0.10 0.10 0.20 0.10 0.25
10Y Gilt yield 0.47 0.30 0.51 0.50 0.61
Source: Bloomberg, Berenberg as of 24/03/2020
*Average of estimates by other experts (Bloomberg), consensus
2505 Commodities
1 2 3 4 5 6 Commodities
Crude oil
massive oversupply imminent
Crude oil punished twice over by corona pandemic and OPEC fiasco
• After oil prices were severely impacted by coronavirus, many market participants hoped for additional OPEC+ production cuts
in early March. The outcome of the meeting could not have been worse, with Russia declaring war on the US shale oil
industry and Saudi Arabia promptly responding with a massive increase in its own production to force the Russians back to
the negotiating table. After that, crude oil suffered the biggest daily loss since 1991. Oil prices are now down about -55% since
the beginning of the year. However, the Saudis’ price war will probably only be temporary given that it will strain their own
national budget and greatly upset the US, Saudi Arabia’s most important geopolitical ally.
• Nevertheless, a short-term and sharp recovery of the oil price is almost impossible due to the now global spread of the
coronavirus. Due to the international standstill in manufacturing and transportation, demand is likely to decline for the first time
since the global financial crisis. In combination with the massive expansion of production, global storage capacities will
probably not even be sufficient to absorb the excess supply in the short term.
Low oil prices put brakes on growth of US shale oil Steep contango signals high oversupply
70
1,800 120
65
Brent (in USD/Barrel)
1,500 100 60
55
1,200 80
50
900 60 45
40
600 40
35
300 20 30
25
0 0 20
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Apr 2020 Apr 2021 Apr 2022 Apr 2023
Active US Rigs (4 month lagged) WTI oil price (USD/Barrel, rhs) 24.03.2020 24.02.2020
Source: Bloomberg. Time period: 01/01/2011 – 24/03/2020. Source: Bloomberg. Time period: 24/02/2020 – 24/03/2024.
271 2 3 4 5 6 Commodities
Precious and industrial metals
Gold remains in demand; industrial metals unattractive
Gold remains attractive as a hedge Recovery of industrial metals postponed
• In recent weeks some investors have sold gold, normally • Hopes that industrial metals would catch up to cyclical
a safe haven, in order to create liquidity for margin calls in stocks have been dashed by the coronavirus-induced
strongly fallen risk positions. As a result, the precious manufacturing standstill. And despite the lower prices,
metal fell to as low as USD 1,450 an ounce. Recently, any relative attractiveness resulting from the drastic
however, it has been able to make strong gains as a result losses in equity markets has been lost.
of the Fed's unprecedented measures.
• For this reason, a quick recovery seems improbable.
• The opportunity cost of gold remains low thanks to low Stimulus measures on the part of China could provide
real interest rates and its relative attractiveness compared some relief. As soon as manufacturing returns to normal,
to safe government bonds remains high thanks to low some metals like copper or cobalt that benefit from
bond yields. However, record ETF holdings and a structural trends, could present opportunities.
pronounced positioning of speculative investors limit
greater price potential.
Low opportunity costs thanks to low real interest rates Base metals surprisingly stable relative to equities
2,000 -2 3,600 15,000
1,750 -1 3,300 14,000
1,500 0 13,000
3,000
12,000
1,250 1
2,700
11,000
1,000 2
2,400
10,000
750 3
2,100 9,000
500 4
2006 2008 2010 2012 2014 2016 2018 2020 1,800 8,000
Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020
Gold in USD per Ounce Yield of 10-year TIPS (in %, inv., rhs) LMEX Metals Index DAX Index (rhs)
Source: Bloomberg. Time period: 01/01/2006 – 24/03/2020. Source: Bloomberg. Time period: 24/03/2015 – 24/03/2020.
2806 Currencies
1 2 3 4 5 6 Currencies
Market developments
Currencies
EUR/USD: Flying high just for a short time EUR/GBP: Euro maintains high level
• The first interest rate cut by the Fed, which was basically • For quite a while, the euro had a difficult time against the
expected but then implemented surprisingly early, pound, as Brexit was finally completed and the
initially played into the euro's hands and gave it an impending fiscal stimulus strengthened the pound.
unexpected boost. However, shortly afterwards the gains
• However, the recent economic and financial market
evaporated in the face of the rapid spread of the virus in
shock has boosted the euro against the pound. The
Europe.
greater leeway of the BoE compared to the ECB in
• Italy is suffering severely from the consequences. The terms of monetary policy to react to the corona crisis has
EU has suspended the fiscal rules. The dollar remains in sent the pound on a slide, since the BoE has quickly and
demand as a safe haven, partly because Republicans comprehensively used the leeway in the past few days.
and Democrats have agreed on a massive fiscal The euro remains at an elevated level above 0.90 pound
package. per euro.
• .
Euro/US dollar exchange rate Euro/British pound exchange rate
1.30 1.30 0.95 0.95
1.20 1.20 0.85 0.85
in US-Dollar
in Pound
1.10 1.10 0.75 0.75
1.00 1.00 0.65 0.65
Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20 Mar 15 Mar 16 Mar 17 Mar 18 Mar 19 Mar 20
Source: Bloomberg Time period: 20/03/2015 – 20/03/2020 Source: Bloomberg Time period: 20/03/2015 – 20/03/2020
30 26/03/20201 2 3 4 5 6 Currencies
Forecasts
Estimates of the most important currencies
24/03/2020 30/06/2020 31/12/2020
Exchange rate forecasts Current Ø* Ø*
EUR/USD 1.08 1.13 1.11 1.14 1.13
EUR/GBP 0.92 0.86 0.86 0.85 0.85
EUR/CHF 1.06 1.09 1.08 1.10 1.09
EUR/JPY 120 125 119 127 120
Change against the euro (in %)
USD - -4.5 -2.8 -5.4 -4.5
GBP - 6.7 6.7 8.0 8.0
CHF - -2.9 -2.0 -3.7 -2.9
JPY - -4.0 0.8 -5.5 0.0
*Source: Bloomberg, Berenberg as of 24/03/2020.
*Average of estimates of other experts (Bloomberg); consensus.
31Publishing information
Publishing information
Publisher
Prof Dr Bernd Meyer, CFA
Chief Strategist Wealth and Asset Management
Authors
Ulrich Urbahn, CFA
Head Multi Asset Strategy & Research
Karsten Schneider
Analyst Multi Asset Strategy & Research
Ludwig Kemper
Analyst Multi Asset Strategy & Research
Berenberg Dr Jörn Quitzau
Joh. Berenberg, Gossler & Co. KG Senior Economist
Neuer Jungfernstieg 20
20354 Hamburg
Germany Contact details
www.berenberg.de
Phone +49 40 350 60-0
MultiAssetStrategyResearch@berenberg.de
Fax +49 40 350 60-900
33You can also read
