MacroResearchBoard

In The End, The Economy Dominates – November 9, 2020

Last week witnessed a sigh of relief in global equity markets after the U.S. election, even though there remains some uncertainty about the final outcome. Assuming an orderly transition in the U.S. political landscape, we expect the financial markets to soon return to focusing on economic prospects and the outlook for corporate profits.

A just-published report noted that global growth momentum is set to wane in the near term as COVID-19 cases escalate in Europe and the U.S. We expect the setback to the economic recovery to be temporary, but the capital markets will be in flux until there is evidence that this will be the case.

The investment implication is that we are maintaining only a neutral weighting on equities, and staying overweight cash until there is greater clarity on the economic outlook. We are maintaining selective exposure to risk assets rather than a full-on pro-growth investment posture. The latter awaits clearer evidence that a synchronized and solid global economic upswing phase is on the horizon. We have focused our pro-cyclical equity exposure on China, Korea and Taiwan in EM Asia, where economic trends are more favorable, while maintaining a slight overweight position in the U.S.