2020 Q4 Outlook

Heading into Q4, we look to see a continued rally in risky assets as investors continue to selectively buy the dips. The driver behind this is twofold: expectations of an economic rebound, particularly centred on China, and the continued momentum of the ESG theme. Hence, we are focused on Chinese equity, EM Bonds with their currency carry trades and new breakthrough technologies that benefit from low interest rates.


To deal with periods of overshoots and diversify, we suggest building up flexible solutions that can allocate between different risk premia. We expect a predictable consolidation in the next two months, but we should see risk perform well till the end of 2021 driven by abundant excess liquidity. Some styles, such as Growth, should continue to de-anchor strongly from reality and generally see an increase in return dispersion. In such times, the analysis of trends, sectors and names can make a substantial difference.


A China centric economic rebound

The South China Morning Post recently reported comments from officials that economists are revising up their growth forecasts for China and the odds are that the Chinese economy runs faster than official data would suggest. Households are steadily returning to their normal pace of consumption while global demand for exports should steadily help.

We maintain our bullish China thesis with this positive impulse slowly spreading to the rest of Asia Pacific. In particular, we remain focused on the innovative IT sector and a rising middle class. Investment flows into Asia Pacific and Emerging Markets should support these currencies but interventions to stem some of their appreciation should support the euro against the dollar, as foreign reserves diversify out of the dollar. Hence, we remain selectively constructive on EM Bonds  as analysis is paramount in Emerging Markets. For example, the Renminbi offers a very sound risk adjusted carry.


Some have termed this the “buy everything rally”, but this is an overblown sentiment. What we are seeing is a cluster of themes: 1) Growth/IT 2) Quality 3) China 4) Credit 5) ESG, followed by a broader bid for risk. The question is whether we will see stability and we expect some degree compared to the usual rotation every few months.

ESG values are gaining momentum

Raging fires and red skies over San Francisco are a stark reminder of the importance of ESG. For decades, efficient capital allocation has driven the market. It still does, to a large extent. But ESG concerns are no longer limited to a few progressive dreamers. ESG plays an increasingly important role in the efficient allocation of capital. As more and more investors prioritize ESG in their asset allocations, resource efficiency solutions are gaining an advantage, encouraging energy producers to continue to diversify.


The integration of the ESG approach is becoming more the norm in the industry and will extend to most asset classes. There is also a shift to more impact-oriented investments with measurable impact Key Performance Indicators (KPIs). This movement has started already. Asset managers are increasingly concerned about all factors that are material to clients’ investments, including those that are non-financial, namely ESG factors. We expect ESG to gain more traction in the US and Europe.

Excess liquidity and an economic recovery should help the carry trade

Excess liquidity defined as negative real rates, money growth above GDP growth or central bank balance sheet growth above GDP growth has long been seen as a forward leading indicator for economic growth and risky assets. The reality is more complex. The announcement of a very expansive monetary policy may surprise the market initially, but the market learns to anticipate this, as has happened in the various phases of the Federal Reserve’s Quantitative Easing program. Nonetheless, the market was still surprised by the speed of the economic rebound this time around. With such a powerful monetary impulse coursing through the US and European economies, the odds are that the market will be surprised again positively in Q4 and 2021.

What does it mean?

We will likely remain in a “buy the dip” market until inflation is anticipated to return to slightly above target in the United States, e.g. 3% in 2022/2023. The risk of such a scenario suggests keeping some hedges.

Conclusion: Buy on dip, but consider flexibility

The aggressive easing by the Federal Reserve and ECB should help growth rebound more quickly than is currently expected. The sense that they will step in if markets tumble also reinforces a buy the dip mentality. In particular, we are focused on an economic rebound driven by China and momentum in ESG.

About Nordea Asset Management

Nordea Asset Management (NAM, AuM 223bn EUR*), is part of the Nordea Group, the largest financial services group in the Nordic region (AuM 311bn EUR*). NAM offers European and global investors’ exposure to a broad set of investment funds. We serve a wide range of clients and distributors which include banks, asset managers, independent financial advisors and insurance companies.

Nordea Asset Management has a presence in Bonn, Brussels, Copenhagen, Frankfurt, Helsinki, Lisbon, London, Luxembourg, Madrid, Milan, New York, Oslo, Paris, Santiago de Chile, Singapore, Stockholm, Vienna and Zurich. Nordea’s local presence goes hand in hand with the objective of being accessible and offering the best service to clients.

Nordea’s success is based on a sustainable and unique multi-boutique approach that combines the expertise of specialised internal boutiques with exclusive external competences allowing us to deliver alpha in a stable way for the benefit of our clients. NAM solutions cover all asset classes from fixed income and equity to multi asset solutions, and manage local and European as well as US, global and emerging market products. 

*Source: Nordea Investment Funds, S.A., 30.06.2020

Nordea Asset Management is the functional name of the asset management business conducted by the legal entities Nordea Investment Funds S.A. and Nordea Investment Management AB (“the Legal Entities”) and their branches, subsidiaries and representative offices. This document is intended to provide the reader with information on Nordea’s specific capabilities. This document (or any views or opinions expressed in this document) does not amount to an investment advice nor does it constitute a recommendation to invest in any financial product, investment structure or instrument, to enter into or unwind any transaction or to participate in any particular trading strategy. This document is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instruments or to participate to any such trading strategy. Any such offering may be made only by an Offering Memorandum, or any similar contractual arrangement. Consequently, the information contained herein will be superseded in its entirety by such Offering Memorandum or contractual arrangement in its final form. Any investment decision should therefore only be based on the final legal documentation, without limitation and if applicable, Offering Memorandum, contractual arrangement, any relevant prospectus and the latest key investor information document (where applicable) relating to the investment. The appropriateness of an investment or strategy will depend on an investor’s full circumstances and objectives. Nordea Investment Management recommends that investors independently evaluate particular investments and strategies as well as encourages investors to seek the advice of independent financial advisors when deemed relevant by the investor. Any products, securities, instruments or strategies discussed in this document may not be suitable for all investors. This document contains information which has been taken from a number of sources. While the information herein is considered to be correct, no representation or warranty can be given on the ultimate accuracy or completeness of such information and investors may use further sources to form a well-informed investment decision. Prospective investors or counterparties should discuss with their professional tax, legal, accounting and other adviser(s) with regards to the potential effect of any investment that they may enter into, including the possible risks and benefits of such investment. Prospective investors or counterparties should also fully understand the potential investment and ascertain that they have made an independent assessment of the appropriateness of such potential investment, based solely on their own intentions and ambitions. Investments in derivative and foreign exchange related transactions may be subject to significant fluctuations which may affect the value of an investment. Investments in Emerging Markets involve a higher element of risk. The value of the investment can greatly fluctuate and cannot be ensured. Investments in equity and debt instruments issued by banks could bear the risk of being subject to the bail-in mechanism (meaning that equity and debt instruments could be written down in order to ensure that most unsecured creditors of an institution bear appropriate losses) as foreseen in EU Directive 2014/59/EU. Nordea Asset Management has decided to bear the cost for research, i.e. such cost is covered by existing fee arrangements (Management-/Administration-Fee). Published and created by the Legal Entities adherent to Nordea Asset Management. The Legal Entities are licensed and supervised by the Financial Supervisory Authority in Sweden and Luxembourg respectively. The Legal Entities’ branches, subsidiaries and representative offices are licensed as well as regulated by their local financial supervisory authority in their respective country of domiciliation. Source (unless otherwise stated): Nordea Investment Funds, S.A. Unless otherwise stated, all views expressed are those of the Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and representative offices. This document may not be reproduced or circulated without prior permission. Reference to companies or other investments mentioned within this document should not be construed as a recommendation to the investor to buy or sell the same, but is included for the purpose of illustration. The level of tax benefits and liabilities will depend on individual circumstances and may be subject to change in the future. © The Legal Entities adherent to Nordea Asset Management and any of the Legal Entities’ branches, subsidiaries and/or representative offices.

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