Markets in 3D: Delta, Deceleration and Divergences
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September 2021
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Markets in 3D: Delta, Deceleration and Divergences
Equities have remained buoyant over the past weeks despite some challenges, primarily due to the exceptional earnings seasons in the US and Europe. The emergence and the spread of the Delta variant overlapping with the deceleration in economic growth already in process in the US and China may have opened up opportunities on the investment front. Indeed, we believe that the market has probably moved a bit too far with regard to pricing in the potential lockdowns.

Equities remain the predominant investment area as their valuations versus bonds continue to be favorable.

In Fixed Income, we keep a cautious stance on duration and are constructive on credit, especially in Europe. 

Finally, we maintain a gold exposure to safeguard portfolio & diversify sources of return.
Monthly convictions
Source: Amundi. The table represents a cross-asset assessment on a three- to six-month horizon based on views expressed at the most recent global investment committee. The outlook, changes in outlook and opinions on the asset class assessment reflect the expected direction (+/-) and the strength of the conviction (+/++/+++). This assessment is subject to change. BoE = Bank of England, EM/GEM = emerging markets, FX = foreign exchange, FI = fixed income, IG = investment grade, HY = high yield, CBs = central banks, BTP = Italian government bonds, EMBI = EM Bonds Index.
Favouring quality and defensive in Europe, long-term positive view on EM Asia
– Equities have been supported by strong earnings relative to history and high expectations, particularly regarding cyclicals. However, we still monitor risks regarding the Delta variant, economic growth and inflation.

– In a short term, it is wise to stay neutral in equities as we expect equity markets to remain sidelined in case of a deterioration of economic conditions due to the virus cycle and the inflation path.
Quality & Defensive European Equities
We recognize that on a valuation basis Europe is more appealing as it has not yet reached its peak in terms of growth and policy actions are still supportive. In this environment, investors should play the rotation favouring quality companies, with a long term earnings potential, attractive valuations and strong pricing power enabling them to pass the increase in input costs to consumers. Nonetheless, in the short term, investors should also be prudent and adopt a defensive stance notably with low volatility approach as the rotation will not be in a straight line.

0.23% OGC*

0.23% OGC*

0.18% OGC*
EM Asia Equities
We are constructive on India (domestic consumption) where the worst of the Covid crisis is likely now behind us. On China, we retain our long-term positive call and believe that recent weakness has opened up interesting opportunities. Investors could take advantage of the sell-off to increase their allocation to Chinese equity in global portfolios. We see compelling opportunities in China supported by the increasing geopolitical relevance of China globally, its economic power, its emerging middle class and the rising share of China in EM indices. However, we continue to monitor the risks against rising US rates and short term concerns over Chinese growth and regulatory actions.

0.20% OGC*

0.25% OGC*
Positive on US inflation and constructive on Euro IG with a preference for short maturities
 We are still constructive on credit, especially in Europe as rating upgrades are running ahead of downgrades, but we keep a cautious stance on duration.

UST yields remain at low levels which are not consistent with the economic growth environment, high debt and deficits. We remain cautious on UST and positive on TIPS.
Euro Investment Grade Corporate
The search for income continues. EUR IG corporates remain in a benign environment – ECB remains broadly accommodative providing strong technical backdrop – and act as an engine for returns. Indeed, the credit backdrop is improving amid robust corporate earnings, and stronger metrics and supportive financial conditions. This allows us to remain constructive on EUR IG, where we prefer shorter duration debt.

0.08% OGC*

0.12% OGC*

0.05% OGC*
US Inflation
With levels above 5%, inflation continued to be a key topic in August as investors still weighed the impact of the spreading Delta Covid-19 variant onupbeat forecasts globally. Whilst the Fed continues to see high levels of inflation as likely to be temporary, we believe inflation is going to be higher than expected. In this context, we maintain our positive view on TIPS as they continue to offer decent inflation adjusted yields.

0.09% OGC*
Gold as portfolio diversifier amid an inflationary environment
 We believe investors should protect portfolios against inflation and assets such as gold can help with that. In addition, in times of rising volatility and some mild deterioration in sentiment, gold can act as a strong diversifier of portfolios.
Precious metals: Gold
We think both the scenarios of rising inflation (gold acts as a hedge against inflation) or a slowdown in growth (recent US and China slowdown provided impetus to gold pricing) should be supportive of gold prices. Gold also serves as a good portfolio diversifier and a safe-haven asset in uncertain and riskier environments.
However, investors should monitor Fed comments and real rates for potential pressures on the metal.
0.15% TER**
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*Ongoing charges - annual, all taxes included. For Amundi ETF funds, the ongoing charges correspond to the Total Expense Ratio. The ongoing charges represent the charges taken from the fund over a year. When the fund has not closed its accounts for the first time, the ongoing charges are estimated. It compares the annual total management and operating costs (all taxes included) charged to a fund against the value of that fund’s assets. Transaction cost and commissions may occur when trading ETFs.
**The TER is a measure that compares the annual total management and operating costs (all taxes included) charged to a ETC against the value of that ETC’s assets. Transaction cost and commissions may occur when trading ETCs.

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