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A new all-time high is rarely the end of the road

Rising analyst earnings estimates and economic optimism have provided a friendly start to the year for stocks. Asian emerging markets, US small caps and UK equities were particularly strong. Gold and safe-haven government bonds, on the other hand, suffered from a rise in bond yields. 10-year US government bond yields exceeded the important 1 percent mark for the first time since March 2020. A further rise in yields is supported by the fact that Joe Biden now also has a Senate majority after the Georgia election and can implement more of his fiscal plans, even if he is likely to make…

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Stock markets have had a good start

The stock markets have had a good start to the year. The majority of the global markets have already experienced a clearly positive development - even if the volatility remains high. We remain clearly overweight in equity with a cyclical bias, even though our vigilance is steadily increasing and our next step will rather be to reduce our the equity quota.

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Mixed performance picture in 2020

2020 was a challenging year for financial markets. At the beginning of the year, optimism prevailed. After the US and China signed a trade deal, markets were pricing in a global economic recovery. Many stock indices reached all-time highs in February before the spread of Covid-19 led to a sharp sell-off. A global recession loomed on the horizon. Extremely pessimistic investor sentiment and the courageous intervention of monetary and fiscal policy led to a stock market recovery from the end of March onwards, which until September was mainly driven by Covid-19 beneficiaries, namely the large…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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Horizon Q1 2021

The past year of Covid-19, restrictions and recession should be followed by a year of vaccines, re-opening and economic recovery.

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2021 with further potential

We remain constructive about equities into the new year. We are therefore starting 2021 with a significant overweight position in equities and a more cyclical bias. Nevertheless, we are becoming increasingly vigilant as much has already been priced in and investors have become more optimistic.

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VIX below 20 would further boost demand for shares

After the strong rally in November, many equity regions have barely moved in December - which is perfectly normal after such a strong run. Especially as many investors now want to wait for the central bank meetings in the next two weeks. Movement has recently been seen above all in British stocks.

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The Berenberg Capital Markets Outlook│Wealth and Asset Management

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies. New every month.

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Some assets up in 2020, others with catch-up potential

The optimists have gained the upper hand on the stock market. A market-friendly US election outcome, encouraging vaccine news and ready central banks have significantly improved investor sentiment and led to a rotation from Covid-19 winners

(tech, gold, safe government bonds) to Covid-19 losers (value sectors, cyclical commodities). Equity funds have recently recorded the largest inflow ever measured over two weeks with more than USD 70 billion. The market seems to be looking

through the current expected growth dip and focusing on the synchronous economic recovery next year. USD 4.3 trillion…

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Small caps, big returns?

The Nobel laureates Eugene Fama and Kenneth French proved the existence of the “size” or “small cap” premium in 1993. The rationale behind the Fama-French three-factor model is that small caps – which we define as companies with a market

capitalisation of €500m to €5bn – are riskier and more illiquid than large companies. Small caps should, therefore, offer investors additional returns for taking on this risk. Other studies have shown that small caps generate an excess return in the long

term, even when adjusted for risk.

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Increasing cyclical tailwind

The market-friendly outcome of the US elections and then the positive COVID-19 vaccine news made investors look for risk again. Both events led to a decrease in uncertainty and volatility. Share prices rose significantly.

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Democratic president and legislative gridlock best scenario

Stock markets have responded to the US elections with relief. One reason for this, apart from the reduction of hedges, may have been that the election result (president Biden, divided Congress) essentially secures the status quo but with less political

tension. The tone in trade and foreign policy should become more diplomatic. Moreover, a majority in the Republican Senate is likely to limit significant changes in tax and spending policies.

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The Berenberg Capital Markets Outlook│Wealth and Asset Management

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies. New every month.

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Markets typically perform well after US election

The Covid-19 crisis has recently worsened, particularly in Europe. In Asia, and above all in China, the situation looks much better. In the third quarter, the second-largest economy grew by 4.9 percent year on year. At the same time, Joe Biden was able to improve in the election polls over the last two months, even if his lead over Trump has recently declined slightly. One of the beneficiaries of this development were emerging market equities, which significantly outperformed developed market equities in the last four weeks, also driven by increased fund inflows. On the surface, not much has…

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Seasonality - best period for equities is just around the corner

October has so far been much better than September; and the second half of October is even more positive for stock markets, at least historically speaking.

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Return potential despite volatility

Volatility on the stock markets remains high. In September, the VIX volatility index for US equities remained above 25%. Looking ahead, the important developments are the US presidential election, vaccine news and the Q3 reporting season, which has already begun.

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Probability of rapid, broad vaccine availability slightly reduced

The volatility of equities has recently increased. The US Federal Reserve is maintaining its position and points out that fiscal policy should now provide impetus for the US economy. However, Democrats and Republicans cannot agree on a further stimulus package. A compromise before the US elections now seems increasingly unlikely. The so-called ‘superforecasters’ put the probability of a deal before the elections at less than 20%. In addition, they have moved their forecasts for a rapid vaccine approval and distribution slightly into the future. This, together with the increased COVID-19…

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Capital Markets Outlook by Berenberg’s Wealth and Asset Management

Compact outlook on capital markets, the economy, equities, bonds, commodities and currencies.

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Q4 2020 │Vaccination hopes

If a coronavirus vaccine is approved, a globally synchronised recovery will probably become the dominant theme for capital markets.

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Volatility has increased In August, especially for the Nasdaq

We consider the recent correction in the overheated and in part ambitiously valued US technology sector to be healthy. In addition to some profit-taking after the strong rally, the options market bore some responsibility for this. With their call bets on rising prices, US private investors forced market makers to hedge against further rising markets in the form of stock purchases, which intensified the upward pressure and led to increased volatility. When the reversal occurred, these hedges were reduced and the feedback loop had a strengthening effect on the downward movement. We believe the…

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Breather and rotation

The recovery of the stock markets has taken a breather – the summer was lacklustre, as we expected. While in the last few

weeks there was initially a clear upward trend at first, there has recently been a significant setback.

 

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Capital Markets Outlook by Berenberg’s Wealth and Asset Management


The golden age continues

“Towards gold throng all, to gold cling all, yes all” – after a rise of 20% in euros, this Goethe quote seems to be proving true again. Gold is one of the bestperforming assets this year. In view of the significant economic uncertainty causedby the coronavirus, this is hardly surprising. A look beneath the surface, however, reveals further reasons for this record run. Although stock markets have been recovering rapidly since mid-March, gold continued to surge. But how much more

can it rise? Is it still worth adding gold to your portfolio?

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US-Megacaps are the dominat performance driver on the S&P 500

Stock markets - above all the US megacaps and cyclicals - have continued to rise over the last two weeks. The Nasdaq, which we described as a "safe haven" at the beginning of February, has seen a return of almost 30% since the beginning of the

year. Their high cash flow generation, strong balance sheets and share buyback programs provide a supportive effect. In some tech segments, however, a great deal (of hope) has already been priced in, so we currently feel more comfortable with

European small caps and cyclical companies. The probability that a Coivd-19 vaccine will be approved in the…

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Relative attractiveness of silver versus gold has normalised

The summer remains lacklustre. Over the past four weeks, not only have European stock markets stagnated. Below the surface, however, cyclicals and especially small caps have outperformed more defensive stocks. Positive economic surprises and hopes for a coronavirus vaccine also provided support, as did the continuing scepticism

and cautious positioning of many market participants. Speculative investors, for example, have reduced their equity positioning in futures over the past few weeks. Positions in corporate and emerging market bonds benefitted from a further

narrowing of risk premiums.…

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