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Investment prospects for BIL

The new normal
BIL - Investment Perspectives 2021


Unsurprisingly, both Merriam-Webster and have voted “Pandemic” as Word of the Year 2020. March 11th - the day on which Tedros Adhanom, WHO Director General, said, "Pandemic is not a word to be used lightly" - seems to have been a long time ago. Since then, the tragic health crisis has permeated all areas of life and affected every part of society. Apparently all events are now classified as in front, while and since classified as part of the pandemic.

In this outlook, we don't focus on the past, but rather on what we believe will shape the investment environment in 2021 as the global economy recovers from one of the worst recessions on record.

Since this recession is homemade, we are not following the typical “F” pattern for recessions, as we believe that growth and earnings can recover much faster than in a “normal” economic downturn. However, that is not to say it will be an easy year for investors. Equities have recovered significantly from their lows, spurred on by the monetary and fiscal policy support measures. This leaves little room for a further increase in P / E ratios. At the same time, the hunt for yield in the fixed-income segment is just as busy as it was 18 months ago. Selectivity and thorough analysis are more important than ever. The same perseverance, discipline and long-term orientation that helped us to successfully master the year 2020 still have their justification - especially in view of the fact that until a vaccine is generally available, turbulence in the financial market is to be expected.

Even after the coronavirus is over, its legacy will remain with us. Developments accelerated by the pandemic, such as digitization and the slowdown in globalization, are unlikely to reverse, and these issues will have a major impact on investment decisions to be made in 2021.

As destabilizing as the pandemic was compared to climate change, the next challenge ahead of us might have been a breeze. We now need coordinated, joint global measures so that our planet does not suffer irreparable damage. This endeavor will be resource-intensive and every sector will have a role to play - especially the financial sector, which has enormous amounts of capital
can mobilize.


We remain true to the literary theme of our outlook and this year we have chosen the title of a novel by Anthony Trollope from 1875 as our headline. "The Way We Live Now" is widely regarded as the masterpiece of the prolific Victorian writer. We found this title appropriate because in this outlook we are looking at what our current life is like in this new normality brought about by the pandemic, and what impact this is having on the investment industry.

Last year we used the title of Hemingway's book “Fiesta” (originally “The Sun Also Rises”) because we had expected an economic upswing after a gloomy 2019. But then came the pandemic - a so-called “black swan”, an unpredictable and tragic event that put the world economy into a twilight phase throughout the year: Even the 28-year recession-free phase in Australia and thus the longest uninterrupted economic growth in an industrialized country , came to an end.

Like a war, the pandemic will be remembered as a defining event of our time. Our way of life has changed, and the developments forced by the virus are now anchored in the fabric of our society.

After the outbreak of the pandemic, more than a third of the world's population was affected in some form by exit restrictions. This led to a simultaneous supply and demand shock for the economy and one of the worst global recessions in living memory. The swift reaction of the fiscal and monetary authorities was unprecedented in peacetime. The IMF estimates that global budget spending and tax cuts have so far exceeded $ 11.7 trillion. An economic stimulus package worth 750 billion euros was approved in Europe. It is the largest in European history and dwarfs the Marshall Plan after World War II. In 2021, the money from it will seep into the real economy.The US has released a $ 3 trillion stimulus package, and another is going through Congress. There was virtually "unlimited" support from the major central banks. The Chinese central bank was a notable exception, as Beijing preferred to rely on targeted fiscal policy stimulus measures rather than broader monetary policy impulses. Outside of China, the cost of these all-encompassing measures must now be shouldered, but if central banks had not acted so quickly, unimaginable damage would have occurred and deep, permanent scars would have left the global economy.

Out of necessity, work and entertainment have shifted to the Internet in many regions of the world, and large parts of this digitized model will remain with us. Teleworking from home has become the order of the day in service industries. The infrastructure required for this has now been tested and will probably continue to be part of everyday work in many companies even after the pandemic has subsided. Online shopping has grown in importance. According to McKinsey, this division grew in the United States in three months as it normally did in ten years. And the Economist writes that even Italian grandmothers have discovered shopping on the Internet for themselves, although Italy has always been at the bottom of the list when it comes to e-commerce. Telemedicine and telelearning will be just as much facets of our new normal as teleworking and possibly giving thousands, if not millions of people access to such offers. Even entertainment has arrived in the virtual world. We can now visit an art gallery on our computer screen or watch films with friends without being in the same room. Due to the move to the online arena, the Academy of Motion Picture Arts and Sciences, which has insisted for nine decades that a movie must have been in a Los Angeles movie theater for at least a week to earn an Oscar, will be in 2021 Also consider streaming movies for Hollywood's top honors.

The fourth industrial revolution has begun, and big data, decentralized transaction databases, cloud-based infrastructure and the Internet of Things will add many benefits to people's lives. However, due to increasing digitalization, attention is also directed towards its downside. The Netflix movie The Social Media Dilemma, which explores the impact social media has on people and technology specialists warn of their own creations, has already led many users to turn off their notifications and try to keep themselves less dealing with smartphone apps. Data protection, internet monitoring, tracking and profiling, and the commercial use of our data will all be important issues in the years to come, not to mention government efforts to ban monopoly behavior.

While we highlight many of the changes that have occurred, much remains the same. The New York Times writes:

A lot of things won't change. That is one of the lessons history teaches us. The 2007-2009 financial crisis did not ruin US stocks, nor did it lead to fundamental reforms on Wall Street. The election of the first black US president did not begin an era of reconciliation between the various ethnic groups. The 9/11 attacks didn't make Americans shy away from air travel ... but events that draw global attention over long periods of time - and that change the way we live - usually leave their mark.

However, the crisis also demonstrated man's innate ability to adapt to circumstances. Our main lesson during the crisis was that a realistic, optimistic attitude pays off and you shouldn't get careless. We maintained a risk-neutral stance for much of the year, focused strictly on long-term goals and tried not to let short-term market fluctuations throw us off track. Ultimately, we were able to avoid selling in panic and then jumping on a train that was already traveling at full speed again. Growth will pick up again, there will be returns and patience (a commodity that is usually scarce in the financial markets) often pays off.

Ultimately, we expect 2021 to be marked by a slow and steady economic recovery as we adjust to the new normal with limited social contacts until a vaccine is available to everyone. In addition, the world will have to get used to a new US government, as Joe Biden will move into the White House on January 20, 2021 and will most likely create a more stable framework for multilateral diplomacy. We maintain our optimistic mindset and look past short-term volatility and ominous new headlines to a bright future after the pandemic.

"A newspaper that wants to make a fortune should never waste its columns on praising something and tire its readers with it."

- The Way We Live Now, Anthony Trollope

Some politicians even see potential for an economic recovery that could lead to a level of prosperity similar to that of the Spanish flu a hundred years ago. Olli Rehn, President of the Finnish Central Bank, said: “After the First World War and two waves of the Spanish flu, both economies and societies were largely down in the early 1920s ... We had a financial crisis and now a pandemic, where the savings rates went up a lot, d. H. if there is not a sharp rise in bankruptcies, we cannot rule out the possibility that we will have a very strong recovery - even if it may not quite keep up with the Roaring Twenties. "

In order for this to happen, fiscal stimulus and monetary stimulus must bridge the time until a vaccine is introduced so that businesses do not lose profits and households do not lose their incomes. Finding a vaccine will be the main theme driving the markets and driving consumer confidence, hopes and fears.

Last year the global economy fell into one of the worst recessions in living memory: 2021 will be marked by a recovery that will last into 2022, when the prosperity losses suffered during the crisis are made good.

In drawing up our baseline scenario and our roadmap for recovery, it was clear to us that we cannot go by the standard scenario for recessions. This was a homemade recession caused by the government lockdowns and not the result of an economic imbalance. We assumed an economic recovery, the course of which is reminiscent of the hook-shaped “Nike logo”, i. H. from an abrupt decline and subsequent gradual normalization of economic activity. Its pace will depend on the extent and success of government containment measures, and it depends on continued political support. So far, the political decision-makers have shown that they are ready to do “whatever is necessary”, as the well-known saying of the former President of the European Central Bank Mario Draghi goes, to save the economy. At the same time, substantial fiscal support is still needed in both Europe and the US.

The following outlines the IMF's growth expectations for 2020 and 2021, which we believe are somewhat pessimistic and possibly leave room for a positive surprise.

As can be seen from the figure above, the upswing will be uneven and largely dependent on epidemiological factors. Some countries, sectors and activities will be found in the emerging part of the hooked path much faster than others. In countries where the virus has been successfully contained, such as China, economic activity is almost back to pre-pandemic levels. In other regions, the increase will be slower, as governments repeatedly intervene until a vaccine is available. We do not believe that new restrictions will completely stifle growth, as governments have a keen interest in avoiding widespread lockdowns. Instead, they take a more balanced approach that addresses both health and economic interests.

In vaccine development, Moderna and Pfizer / BioNTech have seen extremely promising results in studies. They recorded an effectiveness of around 95%. As is so often the case, the crisis nurtured man's ingenuity and ingenuity, and if these results can be confirmed, these vaccines will be some of the most reliable ever. With the money currently being poured into vaccine development, scientists have created these "genetic engineering vaccines" that could lay the foundation for a new age in infectious disease prevention. However, they first have to be approved by the responsible health authorities, and once they have cleared this hurdle, there is still a long way to go with numerous obstacles before they can be used across the board. This includes not only logistical but also psychological obstacles, because the opinion polls show a certain skepticism.

Ultimately, we expect a vaccine to hit the market in the course of 2021.

We could add an additional dimension to our basic scenario, the hook-shaped “Nike logo”. At the company level, a “K” -shaped recovery with two different paths is emerging as a plausible hypothesis. The emerging line represents the parts of the economy that have benefited from the pandemic: companies with deep roots in digitization, online retail and entertainment, technology, AI and robotics, etc. Many of these names will continue to benefit from structural trends that accelerated by Covid-19, such as teleworking, telemedicine and e-learning. They will become an integral part of our new normal. Even after the lockdowns are lifted, teleworking from home will continue to play an important role; more university courses will be held online and business travel does not seem to be an option anytime soon.

The downward-pointing line of the "K" stands for all those companies whose business models have been turned upside down for the foreseeable future. As long as preventive measures are maintained, the service sector (which often involves personal contacts) will not be able to operate at full capacity. The composition of the economy also determines how long the economic recovery will last. For example, countries heavily dependent on service sectors such as travel, tourism and hospitality (which are increasingly found on the descending line of the "K") are likely to be among the last to climb the ascending line.

Another important observation from 2020 is that the unrest caused by the health crisis affected sentiment among economists. Most of them quickly revised down their growth projections sharply, but were reluctant or reluctant to make any upward adjustments. Economists are increasingly turning to alternative sources of data to interpret rapidly changing economic conditions. We believe this is just the beginning of drastic changes in the way models and macroeconomic forecasting are being made.


A new chapter in politics

The US will open a new chapter in its policy in 2021 when Joe Biden takes his oath of office as president on January 20.On his website for the transition phase [1] he hasfour main themes named, to which he will devote himself from day one:


The extent to which he can implement his plans depends on the composition of the congress. In the House of Representatives, the Democrats retain the majority, which is now a little smaller, while the runoff elections scheduled for January in Georgia will decide whether the Senate will go to the Republicans or the Democrats. However, it will likely remain with a Republican majority in the Senate. All in all, this is a balanced distribution of republican and democratic forces in the three branches of state.

Originally, the Democrats were expected to win the election across the board, but the markets have warmed up to this result, in which both parties share power. Now there is a Democratic president who wants to create more economic stimulus and, thanks to the Republicans in Congress who have a controlling role, won't drift too far to the left. In short, it is a near-perfect scenario that represents a middle ground in the highly polarized political landscape of the United States.

The result bodes well for diplomacy. With Joe Biden in the Oval Office, there will probably be fewer trade wars and we can count on a more stable foreign policy from the White House, especially towards traditional US allies like Europe. The trade disputes with China are unlikely to go away, but we expect they will be handled with more sensitivity. However, four years of protectionism have accelerated a trend to reverse globalization, and we believe that the focus on the home country (onshoring) will continue.

Joe Biden is unlikely to reverse Donald Trump's policies that sparked a buzz on Wall Street. The tax concept proposed by Joe Biden provides for a partial reversal of the tax cuts implemented by President Trump in 2017, for example an increase in the corporate tax rate from 21% to 28%. However, it would be very difficult for the newly elected president to get this proposal through the Senate, and that bodes well for companies.

We believe the new president will get the economy going again and get it back on its feet with an ambitious infrastructure program - with the support of both parties.

The most pressing problem for the time being is the agreement on a new economic stimulus program.

"A person's mind will fundamentally refuse to make a decision until it is driven and compelled by an emergency."

- Ayala’s Angel, Anthony Trollope

During the first US lockdowns, the consumer and business impact were cushioned with a $ 3 trillion stimulus package. An integral part of this program was the CARES Act, which allowed the deferral of principal payments to be extended from six months to one year, preventing a widespread and serious consumer crisis. At the same time, around 4.5 million Americans are currently receiving benefits under the Pandemic Emergency Unemployment Compensation Program for the unemployed. According to this, people who previously received federal or state unemployment benefits and are no longer eligible for these benefits will receive an additional 13 weeks of state benefits. This program expires at the end of the year.

With Congress unable to agree on the size and shape of a new stimulus package, the new restrictions to contain the virus do not come with the same safety net, and millions of households and businesses in the US are at risk of being left with no income. Democratic hopes for a $ 2.3 trillion stimulus package are likely to be tempered by conservative Republican influence. Now that the elections are behind us, we believe that a more moderate stimulus package should be adopted this winter: it has to be big enough to support the US economy before a vaccine is available without overly inflating the already high double deficit .

The resilience of the US economy has taken most economists by surprise. Consumers form their backbone and have been responsible for around two thirds of all economic output in recent years. If our expectations are met and a second stimulus package is passed, the outlook for consumption in 2021 is promising. After the initial lockdowns, consumer activity recovered and retail sales are now back above pre-pandemic levels (with a noticeable concentration in online, supermarkets and building materials stores). The real estate market is also flourishing because buyers do not want to miss out on the low interest rates. Despite the positive mood, the savings rate is still high at 13.6% (usually around 8%); H. the consumption potential has not yet been exhausted.

Source: Bloomberg, BIL

At the beginning of 2021, consumption should be supported by an improvement in the labor market (the unemployment rate has already fallen from its high of 14.7% in April to 6.7%). In addition, some wealth redistribution under Joe Biden's plans could have a beneficial effect on consumption in the lower income brackets (the populations with the highest propensity to consume).

“... Companies and suppliers keep operations in the redesigned plants. Every month they manage to expand their production output better "

- ISM survey in manufacturing, October

At companies, production output is still below the pre-pandemic level, but the business climate is improving. There are still many fears within the system that will probably only be dispelled with the announcement of a new economic stimulus package. Joe Biden, who has harshly criticized President Trump's handling of the health crisis, is likely to focus more on federal action rather than letting states develop their own response programs. We assume that there will be more restrictions that will be put in place when necessary and then relaxed again. Still, we believe the impact on businesses will be manageable, as business surveys show that both the service and manufacturing sectors are adapting to this new normal.

“The US economy seems to have started the fourth quarter well; business activity is growing faster than it has been since the beginning of 2019. The upswing was led by the service sector, as more and more companies have adjusted to a life with the COVID-19 pandemic. "

- Chris Williamson, Chief Business Economist at IHS Markit

ISM survey in the US - business climate remains stable

Source: Bloomberg, BIL

The euro zone

Traditional industries

The eurozone is likely to continue to struggle with its old problems of low growth and low inflation in early 2021. When supply chains are restored and export demand picks up, countries like Germany, where manufacturing is at the core of the economy, will be among the frontrunners. Those with better performing digital economies, such as Ireland and the Netherlands, are also well positioned. At the bottom of the list are likely to be service societies, especially tourism-dependent countries like Italy and Portugal. Basically, the pandemic has widened the north-south divide.

The difficult task now is to fine-tune monetary and fiscal policy measures to meet different needs. As Europe's constant quest for consensus on fiscal stimulus ensued, the ECB had no choice but to take the wheel. The central bank will most likely stick to its loose monetary policy. In reality, however, there is little it can do to empower consumers other than ease the burden of existing debt and provide liquidity. There is clearly a need for fiscal support - especially as the second wave of COVID-19 weighs on consumer confidence.

While manufacturing and construction will experience fewer disruptions in 2021, restraints in other sectors, such as hospitality or travel and leisure, create huge economic costs and potentially put millions of jobs at risk. The unemployment rate has risen slowly and is currently 8.4%. So far, the full effects of the crisis on the European labor market have been masked by government short-time working programs.

As the pandemic ushers in a digital revolution right before our very eyes, it is more important than ever for Europe to rejuvenate its traditional economy. There are many companies on the continent that can be counted among the world class. But not many of them were founded in the last 25 years. In short, the continent lacks oomph, because there are practically no companies there that are equivalent to FAAMG (Facebook, Amazon, Apple, Microsoft and Google). Europe urgently needs to find its place in the new digital economy. Since their development is exponential, a delay of a few years later can lead to differences on the order of centuries.

In the UK, GDP projections were recently revised downwards to reflect a decline in economic output of 11.3% in 2020 and growth of 5.5% in 2021. An economic recovery to pre-pandemic levels is not expected until the fourth quarter of 2022. If these predictions are correct, it would be the worst British recession in over three hundred years. This somewhat reduces the risk of a disorderly Brexit, as the British government is aware that leaving the EU without an agreement would further exacerbate the already unfavorable situation. The Office for Budgetary Responsibility warned that in the event of a Brexit without a trade deal, GDP would only return to pre-crisis levels in the course of 2023. Joe Biden has also made a strong commitment to the Good Friday Agreement and should take the opportunity to enter into dialogue with both the EU and the UK. That will help re-establish the foreign policy ties between the two and bring the US back into play.

Emerging markets

China is the special case in the business cycle

Generally speaking, the outlook for emerging markets has turned slightly for the better with the election of Joe Biden, who is expected to take a more traditional stance on foreign affairs. The growth forecasts within the region vary widely. The prospects are best for the Asian economies, especially China, which are benefiting from the fact that the virus has been largely brought under control there.

In a global comparison, China is a special case from an economic point of view, as the country will likely record positive growth in 2020. The IMF is forecasting an increase of 1.9% and 8.2% for the following year. The Chinese authorities have taken a very proactive approach to stimulating domestic demand and moving towards a service-oriented society. In part, this is a side effect of the trade war and harsh US policies that have led China to focus on its domestic economy and its own capabilities. Manufacturing output has returned to pre-pandemic levels and both manufacturing and services are showing strong growth.

First insights into the 14th “five-year plan”, in which the economic and social goals are set from 2021, reveal the intention to establish the country as a technology power. It emphasizes that the quality of growth is more important than the pace. A central aspect is self-sufficiency in the technology sector, and for this the ability to manufacture chips domestically is crucial. These are the prerequisites for innovations such as AI, the fifth generation network and autonomous vehicles. In addition to the technology sector, healthcare and consumer goods also play a key role.

Various other East Asian countries like Singapore have also got the virus under control and are doing better than originally expected.

In other emerging markets, the pandemic is still raging and the cost of countering it has placed both governments and businesses in a precarious financial position. It is not certain whether they will be able to finance the debt burden through growth in the future. For example, the IMF is forecasting a decline in economic output of -8.1% in Latin America in 2020, followed by growth of only + 3.6% in 2021, as "the legacies of the pandemic cloud an already uncertain outlook even further" . India's economy is forecast to decline by -10.3%, with growth of 8.8% in 2021 not fully making up for losses.

The most important long-term topic for investors

Even before the pandemic, the high level of debt within the global financial system was causing discomfort. According to the IMF, the pandemic has contributed significantly to the increase in this debt. In developed countries, public debt will reach 125% of GDP by the end of 2021, and in emerging markets it will grow to around 65% over the same period. While the absolute level of the sovereign debt ratio is problematic, concerns about this have been swept under the carpet in the face of the crisis.

“His debts and troubles had been tolerable up to that point, and he had endured them with ease for so long that he had almost convinced himself that they would never be unbearable.

The Framley Rectory, Anthony Trollope

Politicians can gradually reduce the national debt, for example by causing inflation to rise, which amounts to taxing the population. For the central banks, this is and will remain a balancing act: inflation should rise, but not too high, because they know how painful it can be to then lower it again. As Nassim Taleb said, “The problem with inflation is that it is by no means linear. It resembles a ketchup bottle. At first nothing comes out, and then the ketchup suddenly shoots out. ”Many have expected that monetary policy stimulus would cause inflation to rise, but since the velocity of money has slowed dramatically, this has not happened. Unlike in the past, monetary policy impulses are now coordinated with tax policy.

By formally realigning its inflation approach to target inflation averaging 2% over time instead of setting it as an absolute target, the Fed made a historic change to its monetary policy framework in August 2020. It is speculated that the ECB may soon adopt a similar approach. Financial market participants are not convinced that the introduction of an “average inflation target” has actually increased the inflation outlook in the US, but they seem to believe that this will allow the Fed to keep interest rates low for longer. For us, this step means a slow departure from the “automatic mode” that monetary policy was in: it is a clear indication that monetary policy will remain loose even if inflation threatens.

Rising inflation is not an immediate threat as the world is facing the worst recession on record. The pandemic originally took the form of a supply shock, but secondary effects have now triggered a massive macroeconomic demand shock. The overall impact on prices depends on which of these two shocks outweighs. However, if it is believed that a determined Fed, not afraid of a bigger rise in inflation, can keep prices rising across the board, then expect inflation to rise above 2% in the near future will go out. We should also expect long-term inflation expectations to be around 2%. A short-term increase above the target value in the low single-digit range should not be a problem. A high single-digit increase above the target value, on the other hand, would be problematic for investors and the valuation of financial stocks, as this would put a strain on the portfolios by reducing the value of future cash flows.

The financial markets have currently priced in higher but controlled inflation for the US: a slight rise in inflation that is beneficial to earnings, not the notion that the Fed will remain idle and only recognize dangerous price developments when it's too late. This scenario would benefit real assets (e.g. stocks, gold, etc.) more than nominal fixed income investments (excluding bonds with coupons directly linked to inflationary levels). In Europe, the ketchup bottle no longer deserves a place in the refrigerator, because it is as good as empty, and yet there is hardly any inflation on the continent.

There may be some significant relative price changes: the prices of some essentials could rise due to pegged demand and, in the long run, the trend to reverse globalization could drive up the total cost of business and consumers. On the other hand, prices for services and other goods could fall because the pandemic led to structural changes in behavior.

<< Fast Backward: The hunt for returns that we observed 18 months ago has started again

With more than $ 16 trillion in bonds floating around offering negative yields, it's safe to say that fixed income is running out of juice. In search of return, investors must have the courage to venture out of their comfort zone and into riskier segments of the bond market such as high yield, subordinated bonds and emerging markets if they are still looking to generate income. Of course, the chances of buying a lemon [1] are much higher at the lower end of the quality curve. Instead of buying an index, investors need to separate the wheat from the chaff and evaluate the merits of each investment, avoiding companies with unsustainable business models or heavily indebted companies. Thorough analysis and careful selection are essential. Active management in bonds has never been more relevant to pursuing the desired risk-return dynamics than it is today.

For the curious it should be noted that the "lemon" (English lemon, in this context a Monday car or an inferior product) refers to a treatise by the economist George Akerlof from 1970, in which he examines the quality of the Goods traded on a market can deteriorate due to an existing information asymmetry between buyers and sellers, after which only “lemons” remain.

“It was obvious, I said, that Mr. Broughton did not like the state of the money market; and you could see at a glance that he was trying to relieve the bitterness of his aversion with the help of alcohol. "

The Last Chronicle of Barset, Anthony Trollope

2021 will be about raise risk-free rates at the long end of the curve on both sides of the Atlantic when the economy recovers and a vaccine becomes a less remote option. With that in mind, investors should Duration risk in their portfolios so as not to be surprised when yields start to rise quite quickly. As we saw during the Taper Tantrum in 2013, this can have a ripple effect on any tranche of the bond market. The dilemma here is that investors are often forced to take duration risk as the short end of the curve is inundated with negative yielding bonds. In terms of credit risk, 2020 default rates were less feared despite the unexpected blow the pandemic inflicted on profits. Roughly speaking, credit risk, which is expected to grow in a controlled manner, is not a major issue into 2021, except in a handful of sectors, particularly the U.S. energy and travel and leisure sectors, where many companies are hanging by a thread and their cash rolled into one melting at an alarming pace. Larger companies will survive, but a lot of smaller players in these areas could be ousted or taken over.

Monetary policy should remain loose in 2021, and we do not believe that the major central banks have already exhausted their policy options. Rather, they have demonstrated their ability to come up with creative solutions.

With regard to the Base rates We do not expect the ECB or the Fed to hike in 2021 (in line with the Fed's consensus view and dot plot) as both appear ready to tolerate temporarily overshooting inflation while they are on waiting for confirmation that economic growth will be stable beyond the recovery phase. Should the situation in Europe worsen, the ECB, aware of the weight of negative interest rates on banks' balance sheets, could expand its long-term bank lending or bond-buying programs instead of lowering interest rates.

The Fed has bought Treasuries of all maturities at a rate of around $ 80 billion per month. However, some commentators believe that their bond purchases should shift towards longer-term debt to prevent borrowing costs from rising. In the US, the corporate bond market is now on its own, and the Fed has succeeded in scaling back its bond purchases. It will not extend its corporate bond-buying program beyond December - news that markets have taken calmly. Christine Lagarde, the ECB President, recently reiterated the central bank's support by stating: “The ECB was there for the first wave and we will be there for the second wave too. We stand and remain committed to supporting the people of Europe in this crisis. ”The current pandemic emergency purchase program will run until at least June 2021, with more than half of its budget of 1,350 billion euros still available. The ECB is expected to continue buying bonds worth up to EUR 10 billion per month, and economists expect further support measures to be announced in December 2020 and an extension of the emergency program, which is due to expire at the end of 2021.

Central bank balance sheets (in billions)


Source: Bloomberg, BIL

We could see some unease in the markets if the central banks, namely the Fed, should start thinking about normalizing their policies towards the end of 2021 (if the economic recovery has gone as hoped). Indeed, in their response to the crisis, the rulebook and conventions went overboard. In the US, the Fed pulled the lever on the QA money printer early and all previous records were eclipsed in the biggest money creation event of all time (measured by M2, the measure of the amount of money in circulation) that made the markets like a shot matured whiskey soothed. The current situation would be sobering without such support.

Government bonds

Government bonds still deserve a place in a diversified portfolio, albeit a smaller one. While the negative correlation with equity markets is likely to persist, dwindling returns challenge conventional assumptions about their ability to cushion. The current yield levels shape the future-related risk-return profile of bonds unfavorably asymmetrically. We currently believe it is not optimal to rely too heavily on duration to hedge against capital losses and prefer the highest quality corporate bonds as a buffer for now.

With regard to the European periphery, we still see opportunities for carry trades. The spreads against German government bonds are limited due to the notion that after the announcement of the euro zone rescue program of 750 billion euros and the successful issuance of the SURE bonds, we have come closer to a kind of common European debt [1]. While this was only a small step towards communitisation of debt in Europe, it nonetheless marks a fundamental change that somewhat removes the risk of the eurozone breaking up. The form of "social bonds" met with great demand and somewhat alleviated the shortage problems with conventional government bonds with an AAA rating.

[1] SURE bonds were issued to support the European Commission's SURE program, the EU program to help reduce the risk of unemployment in exceptional situations (S.upport program to mitigate Unemployment R.isks in on E.mergency)

Investment grade

We prefer investment grade corporate bonds, which continue to benefit from central bank support: on both sides of the Atlantic, central bank purchase programs should prevent spreads from widening significantly. As companies seek cheap finance with artificially low yields, issuing activity has hit record levels and is likely to remain high. One thing we do notice is that the use of the proceeds tends to be for defensive purposes. Almost half of the issues are used for recapitalization, and very little is used for acquisitions or shareholder-friendly measures such as share buybacks or dividend increases. In terms of credit ratings, after massive downgrades in the US and Europe, it appears that we have reached the tipping point and the upgrades are slowly returning.

Investment grade - yield to maturity

Source: Bloomberg, BIL

High yield

The return chase has been fired again, and it almost looks like we've moved back 18 months when investors drove down the quality curve en masse. Even if this segment offers some return, it is important to be selective. Spreads are approaching record lows, while credit fundamentals are much weaker than they were before the crisis (interest coverage ratios have fallen, leverage has risen). The yield on US junk bonds reached an all-time low in the fourth quarter of 2020. All of this is driven by unwavering confidence in central banks (there is even speculation that the ECB may begin buying high yield debt), hopes for a vaccine, and conviction that the economy will recover. Indeed, a significant economic recovery could lead to a reduction in high debt ratios. But we should also remember that government support (for example, through moratoria and interest rate suspensions) on the other side of the equation does not last forever. The end of such programs could mean a sharp drop in earnings for some companies. With this in mind, we have diversified exposure to this asset class, focusing on companies with solid balance sheets and selected subordinated bonds (mainly from financial institutions).

Emerging market bonds

2021 should be a friendly year for emerging markets as the global economy continues to recover. In addition, a Biden presidency seems to promise more stability for the region, under which the White House will emit fewer irregularities in political action. Emerging market debt offers attractive gains and investors are not over invested in the asset class, which means there is room for spreads to tighten. We prefer emerging market corporate bonds because they offer lower risk characteristics and often have a shorter duration than comparable government bonds for a similar return. In the area of ​​local currency bonds, performance is inextricably linked to the development of the currency in which they are denominated. This brings with it a volatility of a different magnitude that we do not want to include in our portfolios in the current context. Hard currency alternatives still offer good premiums to corporate bonds from developed countries.

Chinese bonds are worth mentioning as a separate category. Chinese government bonds with a 10-year yield of over 3% offer an attractive spread over US Treasuries and a positive real yield - something that is becoming increasingly difficult to come by these days. The creation of a transparent legal framework and the ongoing internationalization of the RMB are positive trends that are making China an increasingly investable bond market. In fact, overseas investors have actively increased their holdings of RMB bonds over the course of 2020, while passive allocations have also skyrocketed due to the inclusion of Chinese government bonds in leading indices. However, investors should not ignore their exposure to currency fluctuations.

In summary, we focus on building robust portfolios, as a lower interest rate environment is seen as a kind of existential threat to most bond investors for an extended period of time. It is more important than ever to focus on the risks we like to take in order to get higher returns than traditional bonds.

It is important to be selective

"The mood is certainly a very powerful force"

- The Warden, Anthony Trollope

2021 should prove to be a promising year for stocks, buoyed by accommodative monetary policy and aided by economic recovery. Shortly after the much better-than-expected reporting season for the third quarter, analysts raised their forecasts for earnings growth for the next 12 months in all regions except Japan into positive territory. This is quite unusual as analysts tend to lower their earnings per share projections at this point in the year.

84% of the S&P 500 companies reported earnings above estimates - the highest since FactSet began collecting this metric in 2008.

Sentiment was very buoyant and, despite the pandemic and its economic impact, major US indices resumed their winning streak in the final quarter, breaking new highs and pushing valuations already abundant higher. The positive sentiment was fueled by an improvement in macro data, better-than-expected earnings results, economic stimulus programs to compensate for lack of demand and hopes for a vaccine. For this to continue, macro data must continue to improve, some success in containing the virus must be achieved and economies reopened. The arrival of a vaccine will have an extremely positive impact on stocks. However, one has to dampen the initial optimism, because it will take some time before a successful vaccine is manufactured and distributed in large quantities. Expectations must be weighed against the reality of the here and now. As we observed in late 2020, recovery rallies and style shifts proved short-lived amid concerns over rising COVID-19 infection rates.

The profit hurdle for the first quarter of 2021 is quite demanding, especially when you consider that the first quarter of 2020 is the starting point when the spread of COVID-19 in the west was just beginning. However, it could be achievable if there are no major setbacks in macroeconomic or fiscal stimulus. It usually takes four or five years after an economic downturn for earnings to return to pre-recession levels. However, this is not a normal recession due to economic imbalance: it is man-made, which can indeed make a difference. The ongoing economic stimulus programs give hope that the estimates for 2021 will hold, and the results already exceeded analysts' expectations in the second and third quarters.


Revisions of Relative Profits

Source: JPM data, BIL

We must keep in mind that uncertainty is still higher than usual as analysts (and to some extent companies) do not have a clear view of what the future holds. Hopefully the first forecasts for the full year will be published in February.

69 companies made a forecast this earnings season - well below the five-year average of 104

The new US administration is not particularly important for stocks, as longer-term performance is dependent on the business cycle rather than the composition of the US administration. However, there may be some side effects in favor of stocks resulting from more harmonious world trade (prior to the corona crisis, markets were often taken hostage for trade talks) and a boost to infrastructure under Biden that could benefit certain sectors.


We continue to prefer the US (where you can find high quality growth stocks and beneficiaries of the “stay at home” motto) and China (due to its strong domestic growth)

We believe US equity markets can finish 2021 higher than current levels. However, the expensive valuations leave little room for improvement in valuation metrics - investors need to be highly selective and careful analysis to find the highlights. The US is the region where the most prominent beneficiaries of growth and the “stay-at-home” strategy are to be found. That makes them expensive, which can be justified in a context in which the system prices are excessive in all segments. Macroeconomic dynamism is increasing and is being further supported by a new round of fiscal policy impulses. At the same time, Jerome Powell reiterated the Fed's willingness to do whatever it takes to save the economy.

In Europe, there is nothing particularly exciting about the macroeconomic situation and the dynamics appear fragile, especially in the face of new mobility restrictions. On the positive side, the ECB is still very active, and a Biden presidency with potentially more friendly trade policies should benefit the export-oriented euro area. Like Japan, Europe is more dominated by value stocks and could outperform if the style changes from growth to value stocks. Such changes in style, although pronounced, have so far proven to be short-lived. However, investors need to be ready for it if there is a lengthy recovery rally.

Chinese stocks are thriving amid a strong domestic economy and the containment of the pandemic. Increasing reforms in China are expanding access for foreign investors, attracting capital inflows, and further improving growth prospects. Targeted fiscal stimulus continues to support momentum, with sectors such as technology, health and consumer being among the main beneficiaries.

We are hesitant about other emerging market stocks as regions like Latin America and Eastern Europe are still under pressure.


Later in the year, when interest rates (mainly in the US) gradually rise, a renaissance in growth stocks may become more plausible: by then we could see some false starts.

The longer term low interest rate scenario still favors the quality / growth style investment style, which we continue to favor. But as we saw at the end of 2020, recovery rallies are often accompanied by short but violent style changes. While we do not believe the current environment is conducive to widespread outperformance by value stocks, portfolios must be protected from possible temporary mood swings. In order to ensure this, we are now also taking into account economic dependency in our sector forecasts, in particular by reducing our exposure to consumer staples in favor of industrials.

The low interest rate environment has raised some questions as to whether we are considering high dividend stocks for income purposes. So far, we have not done this, as dividend stocks tend to be value stocks or even value traps.


We prefer hand-picked stocks in all sectors

Our preferred sectors are listed below, but broadly we prefer to pick solid investments from each sector rather than taking a generalized approach and risking everything in a specific sector. Issues like digitization are driving returns across the industry spectrum, and the pandemic is widening the gap between winners and losers in each sector.

“Life is so different from theory” - Anthony Trollope

The concentration of returns, with a few high-end stocks driving the returns of an entire sector, remains quite extreme, and this could last for a much longer period than would normally be expected. We think that the concentration of returns will continue as long as the disruption from COVID-19 persists and that selectivity will matter. Investors will need to examine each company's business models carefully and look beyond sectors into subsectors. We will see initial recovery rallies in troubled sectors later in the year, but believe these are more likely to be due to stragglers catching up than winners who fall behind. Today's winning stocks, across all industries, tend to have business models that are tailored to our “new reality” and the longer-term structural change towards digitization.



Healthcare IT Utilities Industry Basic Materials

Healthcare is a defensive sector that has gained momentum from the pandemic and posted the highest earnings growth of all eleven sectors at 13% in the third quarter. Telemedicine had already gained momentum. However, it continued to gain momentum during the pandemic as the technology proved to be an effective tool in combating the spread of the coronavirus (for example in Asian countries via apps for mobile phones) and in providing basic services. Since the highly contagious nature of the disease meant that healthcare workers had to put themselves at risk to help patients while hospitals were at risk of becoming hotspots for the transmission of the disease, virtual doctor visits and chatbots became the purpose of the Used to diagnose patients with no risk of infection while using portable devices to determine vital signs and symptoms.

“In practically one week we experience the change of 10 years ... You go to your doctor as you have done for decades and centuries. But that has now completely changed. "

Dr. Wessely, a British doctor in the New York Times

We believe that from here on, this development will be driven by the wider diffusion of tech-assisted medicine and digital health services, which could expand access to millions of people, especially in far-flung places. The healthcare sector is one of the few sectors, along with consumer staples, that is still buying back their stocks. We think this will continue through 2021 as other, more cyclical sectors focus on rebuilding their balance sheets. In the US, Biden plans to build on the Affordable Care Act (better known as Obamacare) to give Americans more choice, reduce health care costs, and make the health system more manageable. This may be bad news for certain healthcare and pharmaceutical stocks, but in the short term, fighting the pandemic will be paramount.

IT is traditionally a cyclical sector that has become more stable due to the structural change towards digitization. While it is expensive as it contains the mega-caps among tech companies, the higher valuations are somewhat deserved due to its stable earnings growth, strong cash flow generation, and solid balance sheets. In the short term, the sector will benefit from the “stay at home” theme, while in the long term it will continue to benefit from digital change. We believe investors are currently underestimating the momentum that the introduction of 5G will bring to this sector. But investing in technology stocks is not a one-way street to higher returns, as we were able to see during the violent sell-off at the beginning of September. The epicenter of the correction was the tech-heavy NASDAQ index, which reminded us that these stocks are not immune to gravity. Stricter regulation of the major technology stocks seems quite conceivable, as we saw when the Ant Group went public in China. The US is unlikely to smash and split up its own growth companies like Facebook and Amazon. Rather, we should expect laws to promote competition. If you look beyond the obvious pioneers to the niche companies in the sector, interesting opportunities arise.

Utilities are a defensive sector that is benefiting now - and will continue to do so - from the global focus on renewable and clean energies. US President-elect Joe Biden put clean energy at the center of his proposed infrastructure plan, saying he would rejoin the Paris Agreement and reduce emissions to net zero by 2050. He also promised to make U.S. power generation independent of coal by 2035 by electrifying large parts of the country's transit network. It is already amazing to see that NextEra Energy, the world's largest producer of green energy, accounts for around 15% of the MSCI USA Utilities Index. According to some experts, this is a business model that the largest oil companies need to embrace.

MSCI World Energy versus Semiconductor Market Capitalization (in trillion USD)

Source: Bloomberg, BIL

When we talk about energy, one of the most notable observations of 2020 comes from the fact that the market capitalization of semiconductor manufacturers in the MSCI World Index has risen well above the market capitalization of the energy sector. Data, the “new” raw material, is not science fiction, but our present reality. Also noteworthy is the fact that US supremacy in the semiconductor market is a thing of the past, given the technology leadership and market capitalization of TSMC (Taiwan Semiconductor Manufacturing Company) versus Intel.

Industry is a medium to late cyclical sector with which one can rely on rising purchasing manager indices (indicators of economic growth). It will also be a big beneficiary of the large stimulus packages we believe are being put in place by the US and the EU.

Finally, we like materials because China's economic recovery and industrial activity pickup are some of the factors that will drive massive earnings revisions. In addition, rising commodity prices, particularly for iron ore, have resulted in earnings growth that has outperformed stock returns in the metals and mining subsector. Basic materials may seem expensive at first glance, but this is mainly due to the high valuations in the chemicals subsector. There is still value potential elsewhere. This sector also depends on the purchasing managers index and should benefit from fiscal stimulus as well as from the transition to a green economy. The EU has already warned that the scarcity of the elements needed to make batteries and devices that use renewable energy could also jeopardize the Union's goal of becoming climate neutral by 2050. Countries are starting to conduct reviews of strategic raw materials and we anticipate attempts to secure supplies of the raw materials critical to their industries by focusing on exploration, investment and improved recycling. In November, the EU launched the European Raw Materials Alliance (ERMA), the work of which is to ensure reliable, safe and sustainable access to raw materials that are critical to enable a competitive, ecological and digital Europe.


It's no secret that gold prices tend to benefit from mounting uncertainty, be it economic or political. Inflated by its history as a currency, gold has often taken on the role of a hedge against inflation and a portfolio stabilizer in the event of turbulence in the financial markets. In 2020, gold became a trusted asset for many investors (including us at BIL) looking for enhanced diversification benefits in a world turned upside down by the pandemic. As a result, the price of physical gold hit a new high of more than $ 2,000 an ounce.

Unlike fiat currencies, which are viewed as paper money, gold is viewed as a store of value. Against a backdrop of unprecedented combined monetary and fiscal policy efforts, some commentators and gold bugs went so far as to ask whether fiat money will be a passing fad in money's long-term history. However, the central bank money printing machine is nothing new - one only has to look at the economic history of Japan (which is described in great detail in "Princes of the Yen" by Richard Werner).

Positive news about vaccines and prospects for a quick recovery in economic activity took some of the shine from the value of gold towards the end of the year. The pressure to sell gold-backed ETFs has brought the price down. However, we believe that persistently low US real interest rates and the persistence of a low growth and inflationary environment should allow monetary policy to remain unusually accommodative, which supports the gold price and demand for gold. We believe the vaccine news will only limit, not eliminate, the underlying benefit of gold when included in diversified, multi-asset portfolios. This should apply as long as the Fed remains cautious enough.

Crypto currencies or, more generally, digital currency initiatives are also becoming increasingly important as an alternative method of hedging against devaluation effects. While they are still in their infancy, they can be an interesting topic for regulators and investors. The competitive pressures from these alternatives are evident, but deserve separate analysis.


Gold (USD / ounce)

Source: Bloomberg, BIL


The price of oil was a curiosity in 2020. Its price fell into negative territory for the first time in history in April. For reasons of capacity, the producers paid the buyers to buy the goods from them. This was primarily due to technical factors but was symptomatic of dwindling global demand and extreme market volatility at the height of the pandemic.

We are starting 2021 for oil in negative territory and have no reason to expect demand to normalize quickly. Restrictions in mobility and changed habits will not go away with the use of the vaccine. Even assuming that the production restrictions imposed by the OPEC + countries will be successful (which is nowhere near guaranteed if one considers compliance with the restrictions in earlier times), inventories remain above average, which limits any price hike pressure.

Structurally, the upward price pressure opens the door for the inflow of additional supply. While OPEC + is considering delaying its January crude oil hike (by nearly 2 million barrels a day), U.S. shale oil producers are gearing up to increase supply, and Libya has the potential for a faster recovery Production-than-expected and discussions related to the sanctions against Iran continue, which should further dampen the pressure on the oil price.


WTI ($ / barrel)

Source: Bloomberg, BIL

It should be noted, however, that forecasting commodity prices is quite daring. Oil price fluctuations are usually unpredictable as they are geopolitical most of the time.

For years, crude oil enjoyed the premium status of a solid financial asset. However, things have changed, the "black gold" is losing its traction. The industry's inability to meet the world's increasing need to cut emissions to accelerate the clean energy transition and tackle global climate change is having a negative impact on commodity prices. It should be remembered that in order to achieve the Paris Agreement target, it is now evident that fossil fuels must remain in the ground. We haven't got to that point yet, but it is becoming increasingly apparent to us that oil reserves are becoming "stranded assets".


The confidence associated with a post-pandemic economic recovery will also be a major theme moving the forex market in 2021.

The consensus opinion among financial market participants is based on a weakness of the US dollar, which is based on the current account deficit in the US and on historical comparisons with earlier economic cycles and recovery phases. But this time it's different. While this is a dangerous claim, it resonates like a valid argument when you consider the convergence of interest rates since the pandemic and the current valuation of the dollar, which is close to its fair value. Combining these two factors, comparisons with historical business cycles may be daring, given the key differences in the starting points.

The prospects for a normalization of US diplomacy and the expectations in connection with a certain de-escalation in the area of ​​trade should give the non-dollar currencies some air again. We should also be able to expect a more static US monetary policy. Outflows from precautionary dollar holdings are to be expected due to hopes of lower frightening event risks.

Taking the above together, we expect the dollar to weaken moderately, especially from a cyclical point of view. While the convergence of nominal interest rates is now complete, deviations in real interest rates still play a role. The Fed's shift towards an average inflation target means that negative real rates are a believable course. Given the effects of a negative nominal interest rate, most central banks will likely focus their efforts on real interest rates rather than nominal ones. This is apparently the desirable outcome of Fed policy: self-sustaining expansion and a successful rise in inflation expectations with a weaker currency are clearly part of the recipe.

In a world with limited interest spreads, the health of a country's balance of payments matters. The few lucky countries in this regard are likely to face upward pressure on their currencies. Countries battling deflation are unlikely to accept stronger currencies, but outflows from precautionary dollar holdings can be expected.

The European currency alone does not offer an attractive scenario. Faltering strategies in combating COVID-19, aimed at bringing economic strains forward and later building on a solid recovery, simply left US growth significantly behind. Headline inflation remains bleak and inflation above the 2% target seems unrealistic. Another set of monetary policy measures is on the agenda for the December meeting of the ECB. But if one believes that the inertia of inflation has its roots in structural problems, stable real interest rates are likely to be offset by falling US real interest rates and thus speak in favor of a better EUR / USD ratio. Right now the Fed is simply more credible when it comes to reflation strategy.

Other currencies that should benefit from their balance of payments surpluses are the JPY, CHF and CNH.

Historically, Japan's policymakers have been the most vocal when faced with a stronger domestic currency versus the USD. But the reality is that the Japanese authorities have not intervened against the JPY since 2011 (at the time of the great earthquake in eastern Japan, the worst earthquake in the country's history). In addition, changed trading patterns can also be identified. The Chinese renminbi is already more important for Japanese competitiveness than the US dollar, so the Japanese authorities can look forward to a stronger JPY against the US dollar with a certain degree of calm.

A look at the CHF gives a more complex picture. Philipp Hildebrand, the former head of the Swiss central bank (who now works for BlackRock), recently claimed that financial markets underestimated the risk of higher inflation. It should be clear, however, that in the case of Switzerland, higher inflation is likely not a threat, but rather a necessity, to get out of the black hole of current deflation. With Switzerland's reference interest rate of -0.75% over the past five years, the lowest in the world, interventions in the foreign exchange market are the most important tool in combating the appreciation of the CHF. With the central bank's total assets on the order of 135% of GDP, further currency intervention could put the country at risk of being classified as a currency manipulator by the US government.

GBP remains a wild card. The transition period for Brexit is almost over, but when these lines were being written there were only rumors and whispers about the ongoing talks. A soft trade deal would give the pound sterling a boost against the euro as the uncertainty has been resolved, but this should be limited when the collateral damage is taken into account.

While investors in the fixed income segment are desperately looking for returns, players in the forex market are looking for carry. One obvious solution revolves around volatility, with the idea that selling volatility is a type of carry trade.

Finding carry should provide support for emerging market currencies. However, in some cases it will not be enough to hedge some specific imbalances (e.g. balance of payments weakness).

Government debt relief programs will continue to focus on growth and inflation and avoid austerity. However, dealing with the fiscal policy consequences of COVID-19 will clearly be the greatest structural challenge for some countries.

A closer look at the country weights in the bond and equity indices is particularly helpful for Asian currencies. China is well on its way to achieving one of the strongest growth rates in 2021, making it an attractive destination for foreign capital. At the same time, China is actively opening its financial markets to foreigners, which should further support the currency. Expectations of some improvement in China-US trade relations may help, but are unlikely to change fundamentally. Realistically, the technology war will, at best, persist in its current stage.

Sustainable investing

We believe 2020 will be remembered as a year of change. If we take a closer look at the financial and capital markets, it becomes clear, in our opinion, that there is a massive shift towards sustainable investing. The growth of sustainable investments and the consideration of environmental, social and governance (ESG) factors in investment decisions have become more conscious. Massive changes in the behavior of investors and financial market experts have been observed, and the regulatory authorities are imposing drastic new regulations.

The pandemic has brought economic and social instability. It has also put health and care systems to the test around the world. It also made it clear that we are all interconnected, as humans and as part of the ecosystem that supports our lives. Considerable efforts will have to be made to prepare for future threats, to maintain our health and planet, and to achieve an inclusive quality of life. People at the lower end of the income spectrum have been hit hardest, with some having limited or no access to health services and little or no job security. Of course, during the lockdowns, workers were unable to set up assembly lines in their living rooms and were either on leave, laid off, or exposed to the virus. Hospitality workers saw one of the worst spikes in unemployment as staying away (be it mandated or voluntary) and other restrictions reduced activity to just a trace of what it used to be. For steel workers (i.e. robots, especially in manufacturing, where they usually replace assembly workstations), fortune turned in their favor. This year, the World Economic Forum will focus on building new foundations for our economic and social system for a more equitable, sustainable and resilient future. The organization points out that this requires a new social contract that focuses on inclusion and social justice so that social progress does not lag behind economic development. In short, it means that it wants to avoid a statistical recovery that obscures human regression after an event that exacerbated global inequality.

The next big threat is obviously climate change. Greenhouse gas emissions are projected to decrease more than ever in modern history, while the world is heading for the second hottest, if not the hottest year of all time. Combining these two facts shows the relentless pace of climate change and the extreme measures we must take to slow it down. It's a perverse race in which the later we cut emissions, the faster the planet will warm up. Denial is no longer an option. Financial markets have an important role to play in promoting robust, adaptable and mitigating solutions.

The thickness of the ice layer in winter is often proportional to the number of mosquitoes in summer. - Anthony Trollope