Stimulus – Blue Spending on its Way.
Two reasons explain the post US election rally in risk assets: first, a reduction in fear of a contested result; second, hopes of further fiscal stimulus to support the real economy. While President-elect Biden has cemented his win with little chances of legal challenge, chances for a pre-nomination stimulus remain mixed. We believe the “blue wave” scenario of a fiscal stimulus in excess of $1tn is not dead, however, just delayed to January – where Georgia’s run-off election may turn the tables in favour of the Democrats. Even with a split Congress, if there is a person who commands experience in DC politics, and who is able to engineer a compromise with the opposition, that’s Joe Biden. We remain positioned for a rotation towards cyclical assets into Q1 2021.

Vaccine – The Silver Lining
Preliminary efficacy data from Pfizer provided encouraging results on a Covid-19 vaccine. According to recent research, a 90% efficacy rate would mean that only 40% of the population would need to be vaccinated in order to achieve herd immunity. Our focus is now on the roll-out of the vaccine, on the release of additional phase 3 data, and finally on the outlook for other Covid-19 vaccine candidates. We are still months away from an economic normalisation, but there is finally some light at the end of the tunnel.

Positioning – Rotation towards cyclical assets.
We are positioned for upside from the gradual re-opening of the economy and for a rotation into cyclical assets. At the same time, we maintain a substantial portion of our portfolio in liquidity, to benefit from potential volatility and headline risk over the coming months. Following a strong repricing of risk assets over the past few days, we see less upside across indices and benchmarks in bonds and stocks – yet a lot of sectors remain extremely unloved. We focus on firms with upside from normalisation in the economy as well as government or shareholder support, including airlines, cruises, hotels, and on countries/regions likely to benefit from friendlier foreign policy (including Mexico, Europe and China).

Asia trade deal.
Asia Pacific nations including China, Japan, South Korea, Australia, New Zealand and ASEAN countries on Sunday signed the world’s largest regional free-trade agreement, covering over 30% of the world’s population and GDP. The deal signifies the region’s continued commitment towards multilateralism and trade integration, after recent years of reverse globalisation trends from the West. It is also a diplomatic win for China, which mitigates the negative impact of its exclusion from the Trans-Pacific deal. We continue to be positive on China and the Asian complex, as the region benefits from better pandemic management and reduced pressure from the US

To read more on our latest views, please see our Silver Bullet | The Anti-Bubble Portfolio or visit our Insights section.