MARKET INSIGHT FEBRUARY 2021 - Investment Office
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MARKET INSIGHT
FEBRUARY 2021
Market Analysis
Febr ua ry 202 1
January isn’t over yet and volatility is already
back!
After a strong start to the year in terms of the Both the recession triggered by the bursting of
behaviour of risky assets, the month ended with the tech stock bubble and the great recession
a return of greater volatility. following the sub-prime crisis were also affected
at one point by the financial community’s
Some offer explanations for the more erratic expectation of an economic recovery.
conditions on the stock markets, all relating to
system liquidity, which would have resulted in However, one could argue that we are currently
asset “bubbles”, in equities in particular. experiencing an “accelerated” version of the
traditional process of improving expectations.
The record number of IPOs in January, the boom This in turn may cause some concern, of which
in SPACs and the mergers/acquisitions the recent return of volatility is perhaps only an
associated with these structures, or the large- early symptom.
scale financing of companies in the high-yield
debt market, are developments that cannot be This assessment would seem even more
ignored. reasonable as we enter 2021 with mixed results,
“We have not changed course in terms of our investment policy.”
FRANÇOIS SAVARY, CHIEF INVESTMENT OFFICER, PRIME PARTNERS
As such, it is worth asking whether the price both in terms of controlling the COVID-19
FRANÇOIS SAVARY, CHIEF INVESTMENT OFFICER, PRIME PARTNERS
decline observed in recent days is a sign of a pandemic and the effective roll-out of the
phenomenon that could gain momentum in the vaccination campaign. This is a development
coming weeks, in light of the asset price inflation that did not seem to worry investors in the first
seen since Q4 2020. few days of the year.
Let’s try to put things in perspective. However, it is quite something to see stock
market indices sporting such high valuations at
The general consensus, which has factored in an early stage of the economic cycle, or to see
the possibility of an economic recovery in the that the ratio of market capitalisation to global
medium term, may explain the continued GDP is now higher than that seen during the
improvement in risky assets over the first two 1990s tech bubble.
weeks of January.
However, the Cassandra-like warnings of a rise
Indeed, a fear of missing the bull market and in market exuberance, due to the speed with
investor expectations should reassure us about which we moved from “comfortable” territories
the strong upswing in major indices over the last to “optimistic” areas, have hardly resonated with
few months, and (perhaps) the financial community. While
encourage us to let there is no denying that recent
ourselves ride the current and repeated warnings of
wave of momentum. bursting bubbles have weighed
on trader sentiment, the
It is interesting to look at resurgence of volatility on the
comparisons with the stock markets at the end of the
recent financial markets month remains limited and, for
history. For example, it is the most part, linked to specific
surprising to see how phenomena (Reddit effect).
quickly market indices
recovered, following a The disconnect between the
strong correction in real world and the financial
Q1 2020, when compared sphere has perhaps never been
with what we saw in 2000 so clear! This pervading feeling
and 2008. amongst the general population,
while also facing the daily
Febr ua ry 202 1
impacts of COVID-19 restrictions, is perfectly This point is key, as it is at the heart of our
understandable. strategy for achieving our investment objectives.
However, one important aspect to keep in mind As long as the probability of a sustained global
in the above observations is the exceptional economic recovery from the second half
nature of the liquidity cycle initiated by central onwards remains predominant in our possible
banks from spring 2020. scenarios for the economy, we feel it is
reasonable to prioritise equities in a portfolio.
Otherwise known as the super-liquidity cycle! From a more strategic standpoint, this means
that if the initial signs of consolidation of recent
We can never stress this phenomenon enough, gains are confirmed, we will seize stock market
which obviously reinforces the risk of a financial opportunities. We feel especially comfortable
bubble, equities in particular. Has the scale of with this plan given that we are not overweight
this already reached such levels that the rally on equities.
observed over the last few months, as well as
initial signs of a return to volatility, should be In keeping with the approach outlined above, at
used to back away from the stock markets? the end of the month we also added exposure to
industrial metals in our portfolios. We are putting
We do not think so, given that a strong recovery our words into action, in line with our outlook for
in the second half and the start of an expansion growth and our concern about inflation in the
cycle in the medium term is possible, if not medium-term.
probable.
In our view, the disconnect between liquidity and
the real economy does not initially appear to be Geneva, 29 January 2021
threatened, and recent statements by the US
Federal Reserve confirm this take; we remain
convinced that the ultra-accommodating
policies will not be called into question in the
coming quarters.
And what about the economy? In this regard, it is
worth asking whether investors over-anticipated
a synchronised global economic recovery.
As it stands, there is no reason to believe as
much, even if Europe’s recovery is feared to lag
behind that of China and the US, given its
difficulties in managing COVID-19 and the
challenges of its vaccine roll-out.
Nevertheless, this matter will require close
attention in the immediate future; an inconsistent
recovery from one region to the next may
heighten investors’ concerns about the apparent
disconnect between financial markets and the
real economy. We are not there yet, but we are
keeping this scenario in mind.
Given what we have said so far, you will have
gathered that we have not changed course in
terms of our investment policy. We still consider
equities an attractive asset in a diversified
allocation.
However, as mentioned last year, if the search
for yield necessarily involves the stock markets
in the current context, we must accept that this
will also require putting up with greater volatility!
Prime Partners SA
Rue des Alpes 15
P.O. Box 1987
1211 Geneva 1
www.prime-partners.com
CONTACTS
François Savary
Chief Investment Officer
Jérome Schupp
Equity Analyst
Julien Serbit
Portfolio Manager
Tel +41 22 595 09 97
fsavary@prime-partners.com
jserbit@prime-partners.com
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