In April, equity markets of developed countries (in EUR) were again in positive territory, gaining more than 2%. Moreover, the upward trend was global, albeit more pronounced for US indices compared to their European counterparts.
The current environment means that the markets are driven by two key factors: very robust economic data and an acceleration in the vaccination rollout.
In the US, the economic recovery has been particularly strong for several months. Stimulus plans are generating particularly high demand. Households have seen an unprecedented rise in their income and savings. On the production side, confidence indices are at historically high levels. For this reason, various institutions are revising their growth expectations upwards: first estimated at 5% in 2021, several financial institutions now expect growth to exceed 6%.
In Europe, take-off has taken longer as the health situation has made life difficult. At the beginning of the year, high levels of infections and delays in vaccination rollout forced governments to adopt lockdown measures, a serious blow for the services sector. In addition, the delay in the implementation of the European recovery plan has increased the delay that Europe was already experiencing compared to the United States. Services are now showing an improvement and vaccinations suggest that the recovery will no longer be driven only by Industry.
In the eyes of the markets, vaccinations are another very positive factor: Bloomberg certifies that more than 1,16 billion doses were administered as of the 3rd of May worldwide.
In this area, the United States has reached a level of immunity of 30%, Great Britain of 22% and the European Union of 10%. At this pace, the United States will reach collective immunity in July, and the European Union in October. While the health situation seems to be gradually under control in the regions mentioned, it is far from under control in some emerging countries such as India and Brazil, which, at the beginning of May, had 400.000 and 60.000 new cases per day, respectively.
Despite the mood of optimism and the strong recovery ahead, central banks are keeping their foot on the accelerator through asset purchase programmes. Indeed, they believe it is still too early to reduce the amount of assets purchased. For this reason, rates should continue to remain low and support equity markets.
Of course, the reduction in amounts purchased by central banks will be an issue in the coming months if the recovery continues at this pace. This situation is likely to lead to some degree of volatility in the markets that we will follow closely.
Finally, we are maintaining our overall positioning. In this environment of economic expansion, we continue to favour equities over bonds. We prefer the US and Chinese markets, which are expected to lead economic growth throughout the year. From a sector perspective, we are maintaining our positions in cyclical sectors which benefit from the recovery while remaining invested in long-term growth sectors such as Technology, Communication Services and Healthcare.
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