The New Age of Financial
Repression

Given the surge in government and corporate debt, policy will inevitably focus on making this load sustainable: financial repression, spearheaded by central banks, is set to reach a whole new level.

Highlights:

  • Given the surge in government and corporate debt, policy will inevitably focus on making this load sustainable: finan-cial repression, spearheaded by central banks, is set to reach a whole new level.
  • Investors will need to navigate many icebergs this autumn: Covid uncertainties, a hard (or semi-hard) Brexit, the US elections and the risk associated to the crowding of positions (Growth stocks). So our positive risk bias is cautious.
  • Still, investors need to start looking beyond the Covid crisis. The economic recovery is set to continue, and supports a shift towards more cyclical assets, such as emerging currencies and equities. The USD may pause just now, but is in a structurally bearish trend.
  • Our largest overweight remains in Credit, where we recommend to go down the rating scale but not too much (BB).

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INVESTMENT VIEW
THE NEW AGE OF FINANCIAL REPRESSION

RELATED INSIGHTS

COVID-19 FACTS & FIGURES
US President-elect Joe Biden has unveiled a $1.9 trillion stimulus package proposal. Following the recent increase in cases, China has imposed new restrictions and lockdowns in the Hebei province. Canada has implemented new restrictions and a provincewide curfew in Quebec that will last until February 8. German Chancellor Angela Merkel warned that the recent rise in Covid-19 cases could force the country to prolong the nationwide lockdown until April.
EQUITIES: STAY POSITIVE WITH A VALUE-CYCLICAL TILT
Following a monster rally in stocks last autumn, multiples are well above historical averages, but equity investors can count on lingering low yields, tighter credit spreads and increasing central banks’ balance sheets which in turn maintain low the cost of equity and the discount rate of future cash flows.
Video Outlook 2021: Repair and Despair
Watch the Outlook video with Vincent Chaigneau, Head of Research at Generali Investments