“Less bad is probably just good enough” when it comes to markets in the second half of the 2020, according to Natixis, with a “long slog” needed to return to growth.
In a webcast, the firm said it could see an improving growth backdrop globally but that it would be slow and favour sectors such as technology and healthcare.
Jack Janasiewicz, portfolio manager in the investment solutions group at Natixis, said: “Less bad is probably just good enough for the markets but we certainly aren’t going to be seeing a return to growth trend immediately so it’s going to be a long slog to get back to that sort of pre-crisis level, and that’s probably going to be looking out over the next year or two”.
He said US equities would be the strongest-performing asset class going forward thanks to their allocations to technology. The US economy had been bolstered by fiscal stimulus cheques for those who were unemployed or furloughed as a result of the COVID-19 pandemic but Natixis was concerned what the impact would be when this was withdrawn.
“The growth backdrop in the US is very reliant on the consumption backdrop. Seventy per cent of US growth story is driven by that consumption backdrop and as long as we continue to see Congress really trying to bridge the gap to help the unemployed with some of those fiscal stimulus cheques, we expect that slow, steady grind forward but certainly expect it to be uneven in fits and starts,” he said.
The US’ S&P 500 had lost 1.1% since the start of the year compared to losses of 8.5% by the Australian ASX 200.
On the fixed income, he favoured investment grade corporates.
“Even though we’ve already seen a tremendous rally off of the wides back on the end of March, we still think investment grade corporate still offer up some pretty interesting opportunities, some attractiveness, and that’s really on the high-quality spectrum,” Janasiewicz said.
Esty Dwek, global head of macro strategy, said: “We know there is going to be a preference for investment grade over high yield because default risk remains and if markets become more disorderly again and central banks have to choose then they’re going to protect investment grade over high yield so it’s a good place to be”.
She echoed Janasiewicz’s comments regarding US equities and said technology and healthcare would do well in the future while travel-related businesses could take years to recover.
“This quality bias is going to stay. This demand for strong balance sheets, for more visibility on profitability, more sustainability and profitability. All of this is definitely going to continue for some time,” Dwek said.
