INVESTMENT STRATEGY Jeanne Asseraf-Bitton, Global Head of Market Research - Lyxor
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1ST QUARTER 2021
INVESTMENT STRATEGY
Jeanne Asseraf-Bitton,
Global Head of Market Research
Contact email CrossAssetResearch@Lyxor.com. Slides updated as of November 24 , 2020
Important Notice: For investors in the European Economic Area, this material is directed as clients (actual or potential) who meet the definition of a “Professional Counterparty” or
“Eligible Counterparty” under the Markets in Financial Instruments Directive (“MiFiD”), and any products or services described which fall within the scope of MiFiD are only available to
such clients. This communication is a marketing communication within the meaning of MiFiD. MARKET RESEARCH >> INVESTMENT STRATEGY
Covid-19
Crisis & Scenario
MARKET RESEARCH >> INVESTMENT STRATEGY 2
Covid-19 treatments: decisive improvements
Bamlanivimab (Lilly)
Reduces mortality risks by 70%
Only works before symptoms
become severe
Only for high-risk people
Must be injected in hospital/clinic ➢ Widely used: Prone positioning / Ventilators
Will people with mild symptoms ➢ Nov 9: FDA granted EUA to monoclonal
go to hospitals? antibody bamlanivimab (Lilly)
Not enough product available ➢ Oct 23: Remdesivir FDA approved
US has 80K doses ready for
distribution, secured a contract to buy
300K by yearend with an option for
650K more by June
NYtimes, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 3
Covid-19 vaccine breakthroughs
Pfizer/Bionech AstraZeneca/U. Oxford
mRNA 2-doses vaccine 62% efficacy for 131 infected
44 000 people 2 doses but some 1
st doses were ½, in
95% effective (170 infected & which cases efficacy ▲ 90%
symptomatic o/w 8 had the vaccine; Also reduces asymptomatic cases
little side-effects; age & race consistent)
Can be kept in a refrigerator
-80°C => logistics issues (to be
Pre-orders US: 300M EU: 400M
addressed by U.S. military)
Moderna Remaining questions
mRNA 2-doses vaccine No detailed analysis published yet
30 000 people Prevents hospitalization or mortality?
94.5% effective (95 infected & Prevents Covid-19 spread? Could people
symptomatic o/w 9 had the vaccine) be “asymptomatic”, but still contagious?
What age/co-morbidity distribution of the
Stable for 30d at refrigerator
infected?
temperatures
How long will protection last?
No severe disease
What LT safety?
MARKET RESEARCH >> INVESTMENT STRATEGY 4Vaccine Portfolios
MARKET RESEARCH >> INVESTMENT STRATEGY 5Covid-19 vaccine agenda
Nov.-Dec.: EUA for mRNA vaccines
Production by yearend: Pfizer 50M doses
(o/w 20M for US) + Moderna 20M (for US)
Production in 2021: Pfizer 1.3B doses +
Moderna 0.5 to 1B doses + AstraZeneca
2B doses + others …
Unprecedented logistics issues even in
case of conventional temperature
requirements (200K movements by pallet
shippers on 15 000 flights)
-80°C vaccine: dry ice supply, glass breaks
A vaccine available for all willing
Americans by late May? ROW ??
US herd immunity by yearend 2021 or
earlier if super-spreaders get the vaccine
first: 20% of infected responsible for 80%
infections
DHL, McKinsey, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 6Northern hemisphere: surging infections & hospital occupancy
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 7… combined with rising mortality trigger mobility restrictions
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 8Reduced mobility (imposed or voluntary) to affect growth
RichesFlores Research, Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 9What recovery so far? What’s expected?
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 10Adding risk
O/W Equities vs. Neutral Govies
Timing is not easy
Conducive monetary backdrop to last
Fiscal support upside
No bet on the Great Rotation, yet
Covid-19 spread & policy response
effects on growth to offer opportunities
Favor sectors / themes
Regions: prefer GARP
O/W US / JP
N China / EM
N+Tactical buy Europe
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 11COMMODITIES
MARKET RESEARCH >> INVESTMENT STRATEGY 12Oil: Neutral+ until OPEC’s decision
12M Target $50 / barrel
MT potential boost in demand
with the pandemics’ end in 2021
when seasonal demand is high
ST uncertainty over OPEC output
cut extension (+2mbd in Jan?)
Early signs of US producers’
output restart
Bull sentiment still stretched
Geopolitics outlook modestly oil
adverse
Iran ▲odds of deal renegotiation
with Biden election but …
Libya ceasefire but negotiations
unlikely to yield an agreement
ahead of elections planned in 18M Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 13Gold: Past its peak, mainly tactically driven
Downgraded to Neutral
Fundamentals back to neutral
Alternative to cash (share of neg.
yield debt ~20-25%) still supportive
Upside risk to real yields, with
vaccine breakthroughs & higher
odds of recovery
Monetary & fiscal stimulus unlikely
to be inflationary before long
Benign USD trends
Central banks continued selling
ETP flows to fade
Physical market gradual
improvement (jewelry, electronics),
partially offset by tentative
production restart
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 14Copper: still O/W amid firming demand
12M target $7700 / Ton
Conducive macro backdrop
Likely to benefit from reflation, weaker
USD and infrastructure spending
Supportive physical market trends.
Strong China demand to be completed
with higher demand from RoW.
Structural trends in electronics, EV,
decarbonization remain intact
Supply would resume only at a slow rate;
current mine outage will take time to mend
Global inventories to remain tight
ST vulnerability amid stretched
speculative positions
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 15U.S.
MARKET RESEARCH >> INVESTMENT STRATEGY 16U.S. Pandemics spreading
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 17U.S. Covid
death toll
increasing
despite
current
mandate
MARKET RESEARCH >> INVESTMENT STRATEGY 18U.S. States compelled to new
restrictions ahead of
Thanksgiving (11/26)
IHME estimates: if death toll reaches
8 per million, social distancing to be
re-imposed
In which case, daily deaths would
peak mid-January and total death toll
would exceed 400 000 by March
Using University of Oxford stringency
index, about 10 states already close
to restriction levels reached early April
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 19Mobility likely to fall further and affect growth in Dec-Jan
Federal mandate unlikely
Biden against lockdown
Even unwilling to push a
mask mandate
Prefers to work with
Governors
State-imposed and/or
voluntary restrictions to
continue reduce U.S mobility
Downside risks to growth
estimates (BBG) for
Q4 20: +1% qoq
Q1 21: +0.8% qoq
IHME, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 20Markets may overlook U.S. growth hiccups, waiting for vaccine
Weekly GDP tracker signals firm momentum
Macrobond Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 21U.S. Policy: waiting for Georgia
Senate Elections
Republicans 50
Democrats 48
Jan 5th Georgia runoffs
If Democrats win both, they hold a
Senate majority with VP Harris
If not divided GOP keeps the Senate
and Biden rules with a divided
government
Bets at 73% for a Republican Senate
NYTimes, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 22U.S. Policy alternatives
GOP Senate Democratic Senate
Tax on individuals +
Narrow ( INVESTMENT STRATEGY 23Fed likely on hold but concerned
by ST risks to growth
Mnuchin vs. FED: extending CCF, TALF &
Main Street beyond yearend?
Facilities may not operate Jan 1st to 20th
Fed unlikely to return $455bn unused funds
to Treasury (a bill required to restart them)
>0 Janet Yellen as new Treasury Secretary
Little odds of extra QE unless the economy
falters and/or fiscal stimulus fails to
materialize
So far since last March
New Flexible Average Inflation Targeting framework
ZIRP + ST YCC + forward guidance
QE /month at: UST $80bn & MBS $40bn
Backstop facilities to prevent a solvency crisis, extended
(end of July) from Sept 30 to Dec 31 Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 24US ST headline inflation indicators mixed
Macrobond
Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 25O/W US Breakeven Inflation for the ST
Technical spike amid oil base effects
Little visibility on 3-4Y outlook
Downward pressures from cyclical drivers
(output gap, nGDP, unit labor costs …)
Yet, oversupply needs to be re-assessed
once the ongoing default wave is over
Structural tail risks rising
No more “peace dividend” (end of Cold War)
Budgetary discipline vanished with 2009 &
Covid-19 crises
Monetary orthodoxy replaced by massive
unprecedented policies to prevent a
deflationary spiral & foster an inflation revival
Free trade & GVC threatened. Reshoring
Sentiment now against disinflation
Technology downward impact to last
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 26UST Yields: little change expected over next 3M
12M View : Neutral 2Y & U/W 10Y (target @1.25%)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 27U.S High-yield
Not much room
for disappointment …
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 28O/W U.S. High-yield: some spread compression potential
(recovery, oil upside, crave for yield) and lower volatility
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 29S&P 500 Sales: bottom-up consensus coherent with our top-
down model
Bumpy quarterly profile
2020 sales down -5% in 2020
Model assumptions
Nom GDP estimates from CBO
DXY stable N12M
WTI @ $40
Recovery in 2021
Model +5%
Bottom-up consensus +8%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 30Receding uncertainty on EPS growth
2020 sales down -5%
Bottom-up and Top-down
convergence on EPS growth
estimates
2020 at about -15% to -18%
2021 above +20%
> 1/4 companies are not
providing EPS guidance for
2020 or 2021
Lesser uncertainty for 2021
since the vaccine breakthroughs
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 31O/W US Equity
Conducive vaccine backdrop
Fiscal support likely
Monetary stimulus to last
EPS: less uncertainty
Record concentration risk
Rich valuations but supported
by Fed’s unorthodox policies
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 32Neutral US Growth vs. Value: too early for the Great Rotation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 33O/W US Small versus Large
Relative valuation back to LT trend; higher beta; more upside
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 34O/W S&P500 Utilities
To be supported by green
capex
Dividend yield @3.25%
Attractive valuation
Little downside risks
Contrarian play in early cycles
Vulnerable to rising rates &
inflation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 35O/W S&P500 Banks amid cyclicality & steeper yield curve
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 36Down to Neutral Foreign Revenue Exposure (SPXFFRUP)
$; cyclical tilt; operating leverage; rich valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 37Down to Neutral US Staples vs. Discretionary
Down to Neutral US Quality
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 38Sector Performance & Valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 39Neutral EURUSD
Waiting for U.S. Senate
2Y IR gap almost closed
EURUSD gap to PPP @10%
Macro gap detrimental to EUR
ECB to add accommodation
USD safe-haven feature
Speculative positions still
stretched
MT downside risk for DXY
When growth affirms itself
Fed inflation overshoot risk
Ballooning twin deficits
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 40EUROPE
MARKET RESEARCH >> INVESTMENT STRATEGY 41EMU: Rising risks to growth
Services & consumer confidence faltering
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 42Covid-19 : Likely easing of lockdowns in December
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 43EU: restrictions taking
their toll in Q4,
slow recovery in H1-21
France under a 2nd nationwide
lockdown until at least Dec. 1
England under nationwide
lockdown until at least Dec. 2
Germany: Partial lockdown until
Nov. 30
Italy: Red, orange and green
zones. Further nationwide
restrictions in force. Nationwide
curfew from 22:00 to 05:00.
Spain: nationwide curfew & state
of emergency until May 2021
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 44EU €750bn NGEU: when, if ever?
Nov 5: EU Deal on a mechanism linking recovery
funds to adherence to “rule of law”
Hungary & Poland vetoed the €1.8tn budget
No delay in national Recovery & Resilience plans.
Plans to be submitted by April 30. June: Council
approval
Would block debt issuance that requires
unanimous approval
French suggest an “enhanced cooperation”
procedure: some EU countries decide to move
ahead with a policy on their own
Likely recovery fund delay and sustained EU
complexity
€672.5bn Recovery & Resilience Facility
€312.5bn grants + €360bn loans
70% of grants in 2021, 30% in 2022
Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 45EMU Inflation: downward pressures to persist
EMU breakeven downgraded to Neutral early September
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 46ECB eager to address the low inflation issue & the dampening
effect on growth of renewed Covid-19 restrictions
ECB concerned with dire growth prospects
and eager to fight low inflation
ECB argues that recovery from services-led
recessions slower than from manufacturing
(outsized effect on jobs)
ECB focused on duration of policy support.
Vaccine news unlikely to alter its stance
Likely in December: additional PEPP (€400
to 500bn & extension to end-2021); TLTRO3
discount extension; extend period of full
reinvestment of PEPP portfolio beyond 2022.
Unlikely: further rate cuts
ECB: €750bn Pandemic Emergency PP of private
& public sector (incl. Greece) until end-2020.
PEPP includes assets eligible to APP
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 47ECB’s use of flexibility in asset purchases
no constrain for Bunds; a tailwind for BTPs & SPGBs
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 48German 10Y Bunds: Neutral for N3M
U/W for N12M Target 10YY: -0.3%
Mild Bund curve steepening in the
medium term
Recovery in inflation expectations
delayed by the pandemics
Given the ECB’s use of flexibility,
Germany net-net supply would turn
positive (implying no constrain from
33% holding limit)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 49O/W BTPs & Greece Sovereigns: Elevated credit risks but a buyer of
last resort; Financing needs addressed in the short to medium term
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 50EMU Equities: Neutral with a tactical buy
Rich valuations but large downward EPS revisions leave room for upside
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 51EMU sectors: adding a value tilt
Upgrade Financials to Neutral
Weak credit growth and low
yields remain hurdles. But
dividend ban ease in Q1-21
on a case-by-case basis
Upgrade Utilities to Neutral
Transportation demand;
valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 52O/W Consumer Discretionary (Auto & Media > Travel & Retail)
O/W Materials on infrastructure spending theme
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 53Downgrading IT & Healthcare to Neutral
Healthcare: favor EU vs. EMU; dividend yield falling; patent expiry
I/B/E/S, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 54U/W Communication Services & Consumer Staples
U/W Telcos: highly
competitive environment
and tough regulations.
Challenging topline trends,
elevated capex, 5G adding
concern about dividends
U/W Consumer staples:
defensive properties less
attractive ahead of a
recovery; stretched
valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 55Brexit: Neutral UK Gilts with a bearish medium-term bias
Further steepening not excluded at the long end of the curve
Imminent Brexit negotiations
outcome (yearend)
Extending the transition period
looks legally challenging, but if a
deal is on the table, a loophole
will likely be found
Key issues include regulatory
alignment, fisheries, security &
law enforcement, trade dispute
mechanism, financial services
A deal could add up pressures to
Gilt yields that would be partly
offset by BoE purchases
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 56Brexit: Tactical Buy on GBPUSD
Target @1.36
Brexit tailwind: UK unlikely to risk
a no-deal when macro prospects
look the weakest compared to
major countries
Potential exit strategy: several
partial deals in 2020, mostly on
goods & financial services
BoE easing bias to remain a MT
hurdle for GBP
GBPUSD gap to PPP suggest
GBP undervalued by about 9%
Little speculative position
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 57UK Equities: Neutral FTSE 100 (defensiveness, div. yield, valuation)
Tactical Buy FTSE 250 to capture the potential Brexit upside
Bloomberg, Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 58Neutral EUR & GBP Investment Grade Credit
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 59Neutral EU HY: default expectations look optimistic
Macrobond, Bloomberg, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 60JAPAN
MARKET RESEARCH >> INVESTMENT STRATEGY 61Japan Economy: external & domestic upside for 2021 despite
sustained structural pressures
Deep slide in output gap amid
Covid-19 pandemics
Decline in potential growth
Pandemics well contained
Strong vaccine pre-orders
Likely recovery in exports (~80%
towards China, US, Asia) with
strengths in machinery, auto,
tech, cyclical services
Topix 40% foreign exposure incl.
15/20% from US & China
Domestic upside if confidence
returns and drives consumption
MT positive Suganomics effects
with tech & M&A driven Capex
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 62Japan: Supportive stimulus & JPY (ranked N-)
$150/200bn fiscal package in store
(~3% GDP), in addition to previous
$2.2tn (42% GDP)
BoJ B/S expansion 22% GDP
JPY mostly rangy with modest
depreciation tilt:
Lower differentials in IR & monetary
easing with other DM
Weaker JPY appeal for carry trade
amid low foreign ST rates
Weaker Japanese investors’ rationale
to rush to foreign assets
Possible foreign investors’ inflows,
given Japan’s relative U/W
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 63O/W Japan Equity amid positive risk/reward
Upgraded from tactical buy
Tailwinds
Cyclically leveraged to global cycle
Positive macro & EPS recovery in store
vs. conservative estimates
JPY neutral to positive impact
Lower US-China trade war risks, while
strategic US-JP alliance looks very solid
Suganomics market friendly policies:
corporate deregulation, restructuring,
shareholder reforms
Low correlation to DM indices
Headwinds
Rich valuation
Tactical patterns a bit stretched but
benign positioning
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 64EMERGING
MARKETS
MARKET RESEARCH >> INVESTMENT STRATEGY 65EM Economies: 2021 prospects to prevail over Q4 down risks
Virus trends peaking in most EM
Latest indicators suggest
resilient EM activity vs US & EU
Firm China recovery, though the
pace would moderate
Global trade recovery unfolding;
Yet, downside risks from EU
and to some extent US in Q4
Ample global dollar liquidity
(+25% y/y) and MT USD
downside risks
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 66EM Economies: Uneven impact from US elections & Vaccine
Biden election less favorable for RU, TK, BZ.
Climate/social regulation risks for Asia
Vaccine to favor countries still grappling with
virus. Timing dependent on vaccine access
and logistics. Asia better placed.
Once vaccination starts, focus to return on
uneven fundamentals
Fiscal sustainability and Inflation firming in
most EM (to be further boosted by higher
domestic demand & commodity prices)
Deglobalization hurdle (milder commodity
cycle, concentrated supply chains, DM
ageing, protectionism) to result in lower EM-
DM growth differential
Uneven ability to boost domestic
consumption
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 67Neutral overall EM Equities, favoring country plays
Favoring DM over EM for the ST
Lower expected growth differential
Difficult vaccine roll-out vs. DM
Less sensitivity to ▲global liquidity,
stimulus and weak USD
Earlier EM rate hikes (+60bps priced
for the next 12M)
Rich valuations, but relative EM-DM
valuations look fair
Technical remain supportive but
stretched breadth and sentiment
Mixed positioning: strong retail flows
but institutional still U/W
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 68EM Equities - Neutral China & O/W Brazil
China down to N: Taking profits
Recovery still firming, but traction to
moderate, with less stimulus
Not a prime beneficiary from vaccine news
US pressure to persist but less tariffs, more
multilateral pressure & non-tariff barriers
Adverse tactical backdrop and rich
valuation
O/W Brazil amid valuation upside
>0 trend in virus containment
Vaccine could roll out before next wave
Past stimulus favorable to consumption
Downside risk from lower support given
inflation, and threat from rate hike
Appealing absolute and relative valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 69EM Equities – Neutral Russia & O/W India
Russia down to N: capped recovery
Virus trend and economic recovery both
taking the wrong direction, under 2nd wave
pressure (RU vaccine efficacy?)
Limited fiscal leeway amid firming inflation
US elections: deteriorating relationship in
store, with extra sanction risk
Upside risk from oil prices in 2021 and
relative PE discount at highs
O/W India: macro upside past Covid
Virus trend and economic recovery both
taking the right direction, with strong boost
from vaccine
Still elevated inflation would cap stimulus
and magnitude of reform (agri. and labor)
Supply chain diversification favors India
Macrobond, Lyxor AM
Valuation not overstretched
MARKET RESEARCH >> INVESTMENT STRATEGY 70EM HC Debt – Neutral overall until valuation improves
Favor active managers to play dispersion
Improving macro
>0 Macro to moderate in Q4
Uneven EM recovery (Mfg vs. Serv.)
No pending significant default
Fair absolute & relative spreads &
limited country outright opportunities
Downside risk from higher inflation
LATAM & EMEA ~ 2/3 EM debt
Mixed EM risk/reward
Monetary support to continue
Flows to intensify, but offset by higher
issuance (back to avg in 2021,
especially across higher yielders)
Rich valuation offering limited upside
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 71EM FX – O/W High Beta and High Carry (Favor INR, BRL, AUD)
Conducive backdrop: strong global
liquidity, carry chase, global recovery
prospects, DM stimulus, vaccine roll-
out in 2021
MT downside risks for USD: less safe-
haven recourse (growth & trade), high
deficits, more regulation
Reasonable EM FX valuations
Prefer High beta and high carry FX
Too early for oil sensitive and avoiding
sanction sensitive EM FX
Tactical patterns fine for INR & BRL
In DM, AUD is appealing (leveraged
to global trade and Asia, decent carry,
capped by RBA)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 72Agenda
Nov 17: OPEC+ Joint Ministerial monitoring committee
Nov 19: European Council meeting
Nov 21: G20 summit
Dec 1: OPEC+ Conference
Dec 10: ECB meeting (with projections)
Dec 16: Fed meeting (with projections)
Dec 31: UK-EU transition period ends
Jan 5: Georgia runoff elections
Jan 20, 2021: US presidential inauguration
Mar 17, 2021: Dutch general election
April 30, 2021: Deadline for European National Recovery &
Resilience plans to be submitted
Aug-Oct 2021: German federal election
Before oct. 2021: Japan parliamentary election
MARKET RESEARCH >> INVESTMENT STRATEGY 73Our 3M Views
U/W N O/W
U.S. Growth vs. Value U.S. Equities
U.S. Quality U.S. Small vs. Large
U.S. Foreign Exposure U.S. Banks & Utilities
EMU Cons. Staples U.S. Cons. Staples vs. Disc. EMU Equities (tactical)
Equities
EMU Communication EMU Financials & Energy EMU Cons. Disc. & Materials
EMU IT & Health Care UK (FTSE 250, tactical)
EM Equities Japan Equities
China & Russia Equities Asia, Brazil & India Equities
2Y UST Bund Gilts JGBs
10Y UST Bund Gilts JGBs
EM Debt HC U.S. HY Credit
Fixed
US IG Credit U.S. Inflation Breakeven
Income
EUR IG Credit BTPs / GreeceGBs
EUR / GBP HY Credit
EMU Inflation Breakeven
EURUSD Tactical buy GBPUSD
FX
USDJPY EM FX (INR, BRL, AUD) vs. USD
Oil
Commodities Copper
Gold
Merger Arbitrage
L/S Equity Directional
FI Multi-Strategy
Hedge L/S Credit
L/S Equity Market Neutral Global Macro Systematic
Funds Global Macro EM
CTA
Global Macro Discretionary
MARKET RESEARCH >> INVESTMENT STRATEGY 74APPENDIX
MARKET RESEARCH >> INVESTMENT STRATEGY 75Oil: sentiment to drive tactical calls
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 76Copper speculative positions stretched
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 77Fed programs to provide liquidity to companies
Corporate Credit F (SPV ; capacity $750bn) Main Street Lending P (SPV; capa. $600bn)
Primary market (started June 29, c $500bn) $75bn equity provided by Treasury
Secondary market (c $250bn, May 12 & To support lending to SMEs & Non-profit
June 16 for bond purchases) New loan F; Priority loan F; Expanded loan F;
Fed lends to SPV that purchases Non-profit organization loan Fs (17 July)
corporates (individual & ETFs) + NF bonds SPV to purchase participations in loans
w/o certification based on broad index originated by eligible lenders
Eligible bonds: IG or fallen angels (≥ BB-)
Term 5Y; 2Y deferral of principal repayment;
with remaining maturity ≤ 5Y 1Y deferral of interest payments; libor+3%
Leverage for IG 10/1, for fallen angels 7/1
ETFs mostly IG but also HY Paycheck Protection Program Loan F
Pace of purchases based on mkt liquidity
(SPV, PPP capa. $642bn)
To facilitate lending to small business by
eligible lenders/borrowers
TALF (SPV; capacity $100bn; just started)
Fed lends (0.35%) to lenders/borrowers with
Credit facility to facilitate ABS issuance
SBA-guaranteed PPP loans as collateral
Fed to lend to SPV on recourse basis
PPP loans maturity extended to 5Y. Rate 1%
SPV lends to holders of AAA ABS backed by
consumer & SME loans No collateral. No fees. Forgiveness feature
30/06: PPP loans=$515bn PPPLF=$68bn
MARKET RESEARCH >> INVESTMENT STRATEGY 78Japan Equities: Foreign vs. Domestic Call closed
Taking profit after the strong
recent rally in this relative call
Temporary loss of
momentum abroad, stronger
traction at home
Only a marginal support for
foreign exposed stocks from
JPY
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 79Record policy support
G20 monetary support
potentially exceeding $11tn
Fiscal support (including
guarantees) above $13tn
Potentially about $25tn, i.e.
about 30% of world GDP
Massive increase in public
indebtedness
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 80CONTACT DETAILS
Jeanne Jean-Baptiste Philippe
Asseraf-Bitton Berthon Ferreira
Head of Market Research Senior Strategist Senior Strategist
jeanne.asseraf-bitton@lyxor.com jb.berthon@lyxor.com philippe.ferreira@lyxor.com
MARKET RESEARCH >> INVESTMENT STRATEGY 81DISCLAIMER (1/2)
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MARKET RESEARCH >> INVESTMENT STRATEGY 82DISCLAIMER (2/2)
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