Asset Allocation

What was the most important event to precede the 2008 financial crisis? Was it BNP closing its money market funds or the oil price exceeding the $100 mark? No, it was the introduction of the iPhone in 2007. And what’s the event of 2020? Surely it is Covid-19, right? No, says GaveKal’s Louis Gave, it’s the renminbi. ‘The renminbi is for the dollar what the iPhone was for Microsoft: the introduction of a parallel operating system.’

Pfizer’s coronavirus vaccine that sent global stock markets higher on Monday prompted double digit gains in value stocks while growth companies saw their share prices tumble. Is this the long-awaited rotation to value?

Hydrogen will play a key role in the energy transition and will therefore offer plenty of opportunities for investors. However, investors should not underestimate the diversity of the hydrogen market, according to Candriam.

The Belgian asset manager notes in its report “Hydrogen power - Enabling a virtuous decarbonisation loop” that recent government measures to highlight the potential of hydrogen as an energy source of the future have boosted the performance of certain hydrogen stocks. Some stocks have even tripled in the last twelve months.

The too-close-to-call race in the US presidential elections is the worst possible outcome for investors as it will make it difficult to implement an effective stimulus package for the economy, according to asset managers.

We should bear in mind the persisting uncertainty around the elections will not only affect financial markets, says Kristina Hooper, chief global market strategist at Invesco. ‘Our main concern is social unrest. If this scenario unfolds, I would not be surprised to see a sell-off in more risky assets.’

Investors in Asia cannot ignore the large technology stocks, according to David Raper, manager of the Comgest Growth Asia Pacific ex Japan fund. But there are other trends investors in the region can benefit from, such as China’s planned switch to gas.

A victory of Joe Biden in the US presidential election will bring an end to the dominance Wall Street growth stocks in favour of cheaper cyclical stocks, according to UBS AM.

An average of 45% of active equity risk taken by institutional investors can be regarded as uncompensated, according to a study by Northern Trust Asset Management. Investors that use active management have the highest share of uncompensated risk in their portfolios.

The total volume of negative-yielding bonds is fast approaching the record set in early 2019. This will be a determining factor for the markets in the coming months.

The rise in negative-yielding bonds receives little attention these days as investors focus on Brexit and the US presidential elections, as the US presidential elections are likely to be decided in court. This is due to the fact that Trump will contest the result if he loses. So we’re up for a challenging couple of weeks.

European credit markets have hardly responded to the reports about the second coronavirus wave gripping the continent. This does not mean investors are complacent, according to Richard Ford, head of corporate bonds at Morgan Stanley Investment Management. Credit markets have been in waiting mode for a while, and have good reasons for it.

Many technology companies have risen to dominance in a relatively short space of time, with legislators struggling to keep up the speed. Large investors should do their bit by constantly reminding these companies of their responsibilities, say Jon Guinness (photo) and Sumant Wahi, managers of Fidelity International’s Global Communication Fund.

The pair spoke out on this digital ethics in the margin of the annual (now virtual) Sustainable Investment Week of sustainability label Luxflag.