Preparations And Politics

What Are The Key Market Risks for Remainder Of 2020?

Second wave of COVID tops list of strategist concerns

A new report from Natixis, a resource that serves financial professionals with more insightful ways to construct portfolios, reveals a broad consensus on our prospects for recovery. Access the full report here.

September 09, 2020 — BOSTON–(BUSINESS WIRE)–In the wake of the quickest and sharpest selloff and the quickest rebound in history, investment experts across the Natixis organization share a relatively optimistic economic outlook, but consensus says a full recovery will take time, according to the Natixis Strategist Outlook piece published today by the Natixis Investment Institute.

The report, which explores the findings of 36 strategists, economists and portfolio managers representing Natixis Investment Managers, 14 of its affiliated asset managers and Natixis Corporate & Investment Banking, shows broad agreement on the risks ahead and some likely long-term consequences from the COVID crisis, but are split in their views on what this means for risk assets over the coming months.

The Road To Recovery

Despite the rebound so far and the unprecedented fiscal and monetary support provided to date, one-third of strategists anticipate a W-shaped recovery, in effect projecting another economic decline. This sentiment is shared by respondents who anticipate a rally (47%) and those who see a selloff (53%), making the second dip a question of when, not if, for them.

As a result, nearly half (44%) believe that while the recovery is under way, the initial impetus is likely to stall. And despite the stock market’s swift recovery, few experts (2.8%) anticipate the economy will follow suit.

COVID Dominates Market Risks

With public health experts reporting that risks could increase as a potential second wave ripples across the globe in the fall and early winter with flu season, 86% of those surveyed give COVID the leading high risk rating “above 5” for an average risk rank of 7.5.

Although the survey respondents are generally unconcerned about the market risks posed by foreign interference in the upcoming US presidential election (average score 3.5), Natixis strategists are anticipating political volatility and election drama.

“We know investors are bearish on fundamentals. And plenty are questioning the sustainability of the rally, making the technicals bullish, which is why the ‘pain trade’ is for the market to grind higher,” says Jack Janasiewicz, Portfolio Manager & Strategist at Natixis Investment Managers.

Whether you look at retirees trying to generate income, pensions working to meet liabilities, or policy makers struggling with funding decisions, low rates and high levels of debt could create higher than normal risks for those seeking retirement security...

All Eyes On U.S. Election

Although respondents are optimistic nominee Joe Biden will win the US presidential election (78%), there is concern over how any result will be received by the American public. Half of respondents (50%) expect the results will be contested regardless, and half predict the election will result in social unrest (50%).

The majority of participants believe that a Biden election will be better for global trade and geopolitical risk (75% and 75% of respondents, respectively), while 61% of those surveyed give the advantage to the Democratic party on the global economy. Despite showing confidence in a Biden win, more than half (58%) believe that Donald Trump’s reelection would be better for equities, given prospects for lower corporate taxes and a pro-business perception correlated with Trump. When it comes to bonds, strategists offer little opinion, which likely reflects the might of the Fed and a view that rates will be even lower for longer, regardless of who sits in the Oval Office.

Winners And Losers; Positive ESG Forecast

Strategists are unanimous in declaring technology a clear market winner. Similarly, 94% expect healthcare to become an even stronger sector for policymakers going forward, and stay-at-home businesses are a close third (91%). Most surprising, though, is what the pandemic reveals about the resiliency of environmental, social, governance (ESG) investing.

With ESG investment strategies proving mostly defensive in the first six months of the year, interest in ESG investing has grown substantially, giving this investment approach a strong proof point that makes it a winner for 91% of strategists, with 75% of this group indicating they believe that ESG investing will become more prominent/mainstream as a result of this crisis.

With millions staying home and projections for a slow path to economic recovery, traditional entertainment (85%) and travel (83%) rank among the top losers. Energy, which has experienced its own unique challenges since Q1 2020, is also a likely loser for 77% of respondents.

“Looking ahead, we’ve identified global retirement security as a longer-term issue that could be compromised as a result of the COVID public health crisis and subsequent market crisis” said Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “Whether you look at retirees trying to generate income, pensions working to meet liabilities, or policy makers struggling with funding decisions, low rates and high levels of debt could create higher than normal risks for those seeking retirement security.”

 

 

 

About the Natixis Strategist Outlook
The Natixis Strategist Outlook is based on responses from 36 experts, including 24 representatives from 14 of Natixis’ affiliated investment managers, 6 representatives from Natixis Investment Managers and 6 representatives from Natixis Corporate & Investment Banking. To read more, visit here.
About Natixis Investment Managers
Natixis Investment Managers serves financial professionals with more insightful ways to construct portfolios. Powered by the expertise of more than 20 specialized investment managers globally, we apply Active Thinking® to deliver proactive solutions that help clients pursue better outcomes in all markets. Natixis Investment Managers ranks among the world’s largest asset management firms1 with more than $1 trillion assets under management2 (€906.0 billion).
Headquartered in Paris and Boston, Natixis Investment Managers is a subsidiary of Natixis. Listed on the Paris Stock Exchange, Natixis is a subsidiary of BPCE, the second-largest banking group in France. Natixis Investment Managers’ affiliated investment management firms include AEW; Alliance Entreprendre; AlphaSimplex Group; DNCA Investments;3 Dorval Asset Management; Flexstone Partners; Gateway Investment Advisers; H2O Asset Management; Harris Associates; Investors Mutual Limited; Loomis, Sayles & Company; Mirova; MV Credit; Naxicap Partners; Ossiam; Ostrum Asset Management; Seeyond; Seventure Partners; Thematics Asset Management; Vauban Infrastructure Partners; Vaughan Nelson Investment Management; Vega Investment Managers;4 and WCM Investment Management. Additionally, investment solutions are offered through Natixis Investment Managers Solutions, and Natixis Advisors offers other investment services through its AIA and MPA division. Not all offerings available in all jurisdictions. For additional information, please visit Natixis Investment Managers’ website at im.natixis.com | LinkedIn: linkedin.com/company/natixis-investment-managers.
Natixis Investment Managers’ distribution and service groups include Natixis Distribution, L.P., a limited purpose broker-dealer and the distributor of various U.S. registered investment companies for which advisory services are provided by affiliated firms of Natixis Investment Managers, Natixis Investment Managers S.A. (Luxembourg), Natixis Investment Managers International (France), and their affiliated distribution and service entities in Europe and Asia.
About Natixis Investment Institute
The Natixis Investment Institute applies Active Thinking® to critical issues shaping the investment landscape. A global effort, the Institute combines expertise in the areas of investor sentiment, macroeconomics, and portfolio construction within Natixis Investment Managers, along with the unique perspectives of our affiliated investment managers and experts outside the greater Natixis organization. The goal is to fuel a more substantive discussion of issues with a 360° view of markets and insightful analysis of investment trends.
1 Cerulli Quantitative Update: Global Markets 2020 ranked Natixis Investment Managers as the 17th largest asset manager in the world based on assets under management as of December 31, 2019.
2 Assets under management (“AUM”) as of June 30, 2020 is $1,017.7 billion. AUM, as reported, may include notional assets, assets serviced, gross assets, assets of minority-owned affiliated entities and other types of non-regulatory AUM managed or serviced by firms affiliated with Natixis Investment Managers.
3 A brand of DNCA Finance.
4 A wholly-owned subsidiary of Natixis Wealth Management.