hongkongen
The old school recovery

The old school recovery

05-02-2021 | Monthly outlook
A focus on stimulating the real economy will make the post-Covid-19 recovery different from previous ones, says Robeco’s Multi Asset team.
  • Peter van der Welle
    Peter
    van der Welle
    Strategist Global Macro team
  • Jeroen Blokland
    Jeroen
    Blokland
    Portfolio Manager

Speed read

  • Money is being directed into the real economy and not just financials
  • Emergence from Covid-19 is looking different from previous recoveries
  • Stimulus bodes well for commodities and earnings growth for equities 

Governments and central banks are conducting an ‘old school’ style method of reopening economies as Covid-19 vaccines gradually permit the end of lockdowns, says strategist Peter van der Welle.

This should translate into a resurgence in demand for commodities, along with earnings growth well into double figures for companies, adds Jeroen Blokland, Head of the Multi-Asset team.

“The global economy is recovering and looks likely to strengthen further,” Van der Welle says. “Equally important, this recovery is starting to look different from those we have become used to in recent decades.”

“The strong focus on fiscal stimulus aimed at boosting the real economy instead of monetary stimulus aimed at stabilizing the financial sector makes this more of an ‘old school’ recovery, in our view. Old school, as in the real economy starts to gradually take center stage in the macro news flow, spurred by positive multipliers from past and future extraordinary fiscal and monetary stimulus.”

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
Subscribe

The recovery has begun

Evidence suggests that the recovery is now well underway, with 5.5% global GDP growth predicted in 2021 compared with a 4.4% contraction last year, according to the IMF’s January 2021 World Economic Outlook. This is an upgrade of 0.3% from its previous forecast.

The expected recovery in global trade is a specific tailwind for export-oriented economies. After the 8.8% decline last year, the Dutch Central Planning Agency expects a global trade rebound of 6.6% in 2021.  

“With vaccinations having started in many countries, we are gradually moving towards herd immunity,” says Van der Welle. “Consequently, economic growth is set to overshoot the trend.” 

The biggest bang for the buck

“In the US, it is starting to become clear that the Biden administration will search for ‘the biggest bang for the buck’. The new US Treasury Secretary Janet Yellen said the government needs to ‘act big’, with a focus on those who are in greatest need and have a high marginal propensity to spend.”

“This stands in sharp contrast to the aftermath of the global financial crisis (GFC), when the financial system instead of the real economy was the focus of government support. This time around, available fiscal space is not just being used forcefully, but is also largely being redirected to address the steady rise in inequality, especially in the US. The strong focus on the demand side there is visible in measures such as direct cash payments to households, job retention schemes and unemployment insurance.” 

“Thus, the boost to real GDP from each government dollar spent could very well be larger compared to the post-GFC recovery. We expect continuous fiscal support in both the Eurozone and the US.”

Stimulus programs

Both have already pledged such support, led by the USD 1.9 trillion stimulus bill proposed by President Biden and the EUR 750 billion European Recovery Fund set to be distributed in the second half of 2021. But who will actually be spending this money, and where?

“As the possibility to spend in the real economy emerges on the back of reopenings in the second and third quarter of 2021, we firmly believe that global consumers and producers are willing and able to spend excess savings as employment improves and consumer risk aversion drops,” says Van der Welle.

“As lockdown measures are eased and economies gradually reopen, albeit under some form of toned-down social distancing, demand for traditional services that require in-person interaction such as high street retailers, hospitality and leisure will increase. Thus, the real economy will start to catch up with the already elevated activity levels of the digital economy.”   

Commodities are back in play

So, what does this mean for investors? “With extraordinary amounts of fiscal stimulus aimed at boosting the real economy, commodities have come back into play,” says Blokland. “This was the main reason why we initiated a long position in commodities in May last year. Even after a 15% rally, recent developments suggest that the commodity rally has further to go.”

“A significant part of the fiscal stimulus is direct aid for businesses and consumers. Historically, a rise in social benefits has been accompanied by a rise in commodity prices. In addition, fiscal stimulus is likely to be proactively aimed at lower-income households. These households consume more goods by volume, further underpinning demand for commodities.”

Stimulus could trigger a rise in capex by companies. Source: Refinitiv Datastream, Robeco, 31 January 2021.

“Fiscal stimulus also offers a way of accelerating the realization of sustainability targets. China’s ambition to become carbon neutral by 2060 and President Biden’s climate plan targeting USD 1.7 trillion in spending over the next ten years are just a few examples of this. The ever-increasing awareness of global sustainability challenges will result in a green capex wave in the coming years. This, too, will translate into strong demand for commodities.” 

“Finally, commodities provide a hedge against both a lower US dollar and higher inflation. The combination of global economic recovery, extremely loose financial conditions and somewhat extended valuations is likely to push the dollar gradually lower. Commodity prices rise when the dollar falls.”

Large earnings growth seen

The old school recovery is likely to benefit equities as well, as it magnifies the expected spike in earnings growth,” Blokland says. “Our analysis shows that earnings growth is especially strong in the expansion phase of the business cycle, which we have just entered.”
Earnings growth is seen rebounding. Source: Refinitiv Datastream, Robeco, 31 January 2021

“Massive amounts of fiscal stimulus will function as an earnings multiplier too. For the MSCI World All Countries Index, earnings growth of roughly 25% is expected. In regions with high operational leverage – Europe, Japan and emerging markets – expectations are as high as 36%, which we believe is achievable.”

“As a result, earnings growth will be the main driver of equity market returns going forward, especially since valuations in some parts of the market (though certainly not all) have become elevated. This is also why value stocks and equities from outside the US, which are cheaper and have lagged significantly, have more upside from here.” 

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Logo

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree