Christian Nolting, Deutsche Bank International Private Bank
The Covid-19 pandemic, mandatory lockdowns and more intrusive state intervention have had profound effects on social and economic activities, accelerating trends already underway and exacerbating problems that require new responses.
“In our daily lives there is no return to the status quo ante the pandemic,” argued Christian Nolting, global chief investment officer at Deutsche Bank International Private Bank, during a media briefing on Wednesday.
Interest rates in the US are at their lowest level ever, but the pandemic has had a “drastic impact” on the labour market, with all jobs created in the US since the global financial crisis in 2008 lost in just one month (15 March – 15 April 2020), according to Deutsche PB research.
Among fixed income assets, Deutsche PB is looking for “selective opportunities in high yield”, including emerging market hard currency debt, while avoiding core government bonds.
In equities, the US has further upside potential, but “it is an uphill battle” for European stock prices.
The outlook for emerging markets – especially Asia – is generally positive, and they could repeat their strong performance of last year.
“Asia is moving ahead, anchored on China”, said Tuan Huynh, Deutsche PB’s chief investment officer for Europe and Asia.
“Emerging Asia’s corporate earnings per share estimates are already close to pre-crisis levels on the back of faster economic recovery,” he noted.
China’s income per capita has grown 12 times in the last 20 years, and the country’s share of world GDP rose 1.3% last year, according to Thomson Reuters.
In addition, household savings reached 37% of disposable income last year, compared with 30%-32% in each of the previous seven years, which should support consumption, while the urban unemployment rate has fallen to about 5% versus more than 6% in January 2020, said Huynh.
However, global investors must take account the wider ramifications of the transformations underway, said Nolting.
He warned that the consequences of the pandemic are greater fragmentation of economies and societies, with structural change inevitable to meeting growing inequalities and economic disparity within developed and emerging countries likely to rise this year.
“A historic crisis is leading to an emerging new reality, with demographics, debt and digitalisation all having an important role to play,” he said.
Most notably, “technology is taking an ever more prominent role in people’s behaviour and work practices”, as well as in responding to the requirements of millennial populations focused on ESG and resource stewardship.
“The presence of the state will increase, inequality will be in sharper focus, while behavioural, lifestyle and business trends will shape infrastructure and consumption, notably millennials and the platform economy,” said Nolting.
Indeed, the evidence of rapid transformation is already visible, according to Huynh.
“Covid-19 has accelerated digitalisation across the world, with corporate IT budgets adding remote working capacity,” he said.
Huynh noted that e-commerce penetration growth is at its highest level, increasing 23.3% in 2020, with a 682% rise in ‘buy online, pick up in store” compared with pre-pandemic levels in January 2020.
The increasing prevalence of technology is also reflected in the soaring value of intangible assets (patents, brand value, customer base) in the S&P500, comprising 90% compared with 68% in 1995, according to Deutsche PB research.
Relevant investment themes include smart mobility, cybersecurity, healthcare, infrastructure and 5G “fast forwarded”.