ABN Amro Bank NV

12/03/2020 | Press release | Distributed by Public on 12/03/2020 00:27

ABN AMRO MeesPierson takes on more investment portfolio risk for 2021

ABN AMRO MeesPierson publishes its 2021 investment strategy: 'The great restart'. The restart beholds a global economic recovery from the second quarter but uncertainty in the short term. Furthermore ABN AMRO stance positive on equities (slightly overweight), overall it stance neutral on bonds.

For 2021 investors can anticipate a strong restart of the global economy

Today, ABN AMRO MeesPierson presented its new investment strategy for 2021 entitled 'The great restart'. In it, the private bank says it expects to see an ongoing global economic recovery starting in the second quarter of 2021. ABN AMRO MeesPierson assumes in this scenario that a coronavirus vaccine will be available and that governments will continue to support the economy. 'It's been a turbulent year for investments,' observes Ralph Wessels, Head of Investment Strategy at ABN AMRO MeesPierson, 'and although the volatility won't evaporate, our base scenario assumes that growth will pick up simultaneously around the world from the second quarter. Given this expected economic rebound, we've taken on more risk in the investment portfolio in the shape of a slight overweight in equities (up from neutral), while staying neutral on bonds.' Wessels acknowledges that the outlook for recovery contrasts sharply with the worsening short-term picture: 'The second coronavirus waves will trigger economic contraction in the last quarter of 2020 for many developed economies. But it's important to look ahead, especially as there have been some structural changes. The pandemic has accelerated a number of trends, such as the interest rate decline towards the zero line or even lower. This is compelling investors to opt for higher-risk investments, as returns are now expected to be lower than in the past.'

Slight emphasis on cyclicals in equity portfolio in light of economic recovery

2020 was a year of great highs and lows for equity markets, but ABN AMRO MeesPierson foresees an economic recovery in 2021. In light of this, it has taken on more risk, especially in the equity portfolio. After adjusting its position from underweight to neutral back in October, the private bank's stance on equities recently became even more positive. This step has resulted in a modestly overweight position, with a slight emphasis on cyclicals in the equity portfolio. This is expressed in ABN AMRO MeesPierson's preference for the industrial and health care sectors (both overweight), and caution towards consumer staples and energy (both underweight). In the financial sector ABN AMRO MeesPierson has upped its position to neutral as another sector that will benefit from an economic rebound. At the regional level, its preference is for emerging markets, reflecting expanding international trade and the possibility that geopolitical tensions may ease with Joe Biden as US President. In the developed markets, there is still a preference for US stocks, given this market's resilience and high exposure to IT. The private bank has less confidence in European stocks (underweight) now that the continent is grappling with a second coronavirus wave.

Accelerated growth for green bonds

ABN AMRO MeesPierson sees the coronavirus as the final blow for yields on core government bonds and therefore maintains its neutral overall position in bonds. Nevertheless, ABN AMRO MeesPierson does see some opportunities in bond markets - especially in emerging markets, investment-grade corporate bonds, and in green bonds. A duration strategy in emerging markets can still generate a return, since many of them continue to have positive interest rates (duration strategies ride on bond sensitivity to interest rates). ABN AMRO MeesPierson also remains positive on investment-grade corporate bonds. The private bank is still cautious on riskier high-yield corporates, and within the high-yield segment it advises investors to opt for more highly rated bonds. The bank also sees opportunities in the accelerated growth of the green bond market to give weight to sustainability in the bond portfolio.

Euro can benefit from weaker dollar; oil and gold set to rise in 2021

ABN AMRO MeesPierson expects the US dollar to fall again in 2021 (to EUR/USD 1.25 at the end of the year). This is due partly to the expectation that the real US interest rate will remain negative and may fall further, keeping the position of the euro against the US dollar positive. A strong economic rebound could give the euro additional buoyancy. Regarding the oil price, the bank believes the policy of the new US President Joe Biden could cause energy market shifts, given investments planned to create a more sustainable energy mix. This could affect the oil price. Another important factor for the oil price will be the ability of OPEC+ countries to reach agreement on new production targets. ABN AMRO MeesPierson expects the price of Brent crude to reach USD 50 by the end of 2021. Finally, the private bank sees the upward trend in the gold price remaining intact. The gold price reached a record high in 2020, but dropped in the wake of good news about vaccines. ABN AMRO MeesPierson expects this weakness to prove temporary and believes it will reach USD 2,000 by the end of 2021.