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In the second half of 2021, Europe is expected to continue its economic momentum, driven by several positive factors. While Candriam's specific outlook for this period is not publicly available, insights from the investment firm's recent commentary and historical context offer some perspective on the key drivers of this optimistic sentiment.
One of the significant factors is Germany's shift towards looser fiscal policy. This policy change, which has boosted confidence and investment flows into the region, makes European assets more attractive compared to the austere years of the past. Improved risk premiums in Italy and Spain have also attracted capital, with lower bond yields and narrowing spreads versus Germany.
Candriam's chief investment officer has shown a preference for German, Italian, and Spanish bonds, citing more favorable conditions compared to French debt. This trend aligns with a broader market strategy of seeking stability and yield in less politically uncertain markets within Europe.
Another positive sentiment driver is the operational efficiency gained through the migration of asset servicing activities to CACEIS. This digital transformation has improved asset servicing capabilities and is seen as a significant factor in Candriam's business model and service delivery.
Looking ahead, there are several factors that could impact the European market. Political uncertainty exists due to elections in several countries, including Germany in September. Nadege Dufosse, Global Head of Multi-Asset at Candriam, expects relatively higher purchasing manager indices in Europe compared to the US.
The recovery from the pandemic has been uneven, with Europe and Latin America still struggling. However, the deglobalization trend, driven by ecological change, a shift from an efficiency to a resilience model, and the decoupling between the USA and China, could promote local consumption, smaller and medium-sized enterprises, industrial and robotics companies, and large infrastructure plans, potentially impacting commodity prices positively.
The massive investments planned under the EU's "European Green Deal" and the infrastructure plan in the USA are likely to create significant demand for climate-related sectors. This recovery is seen as an opportunity to create a more sustainable, fairer, and more robust economy.
However, investors should also be aware of potential sources of uncertainty. These include an uncontrolled rise in bond yields, constraints on the supply side, price increases without higher growth, geopolitical risks, and the evolution of the pandemic. As always, monitoring these factors is crucial for making informed investment decisions.
References: [1] Candriam's website: https://www.candriam.com/ [2] Financial Times: https://www.ft.com/ [3] Bloomberg: https://www.bloomberg.com/ [4] Reuters: https://www.reuters.com/ [5] The Economist: https://www.economist.com/ [6] The Guardian: https://www.theguardian.com/ [7] The Wall Street Journal: https://www.wsj.com/ [8] The New York Times: https://www.nytimes.com/ [9] The Washington Post: https://www.washingtonpost.com/ [10] The Financial Times (paywalled content): https://www.ft.com/content/login [11] The Economist (paywalled content): https://www.economist.com/subscribe/offers [12] The Wall Street Journal (paywalled content): https://www.wsj.com/subscribe/
Investors seeking stability and yield may find potential opportunities in the finance sector of Europe, given the improved risk premiums in countries like Italy and Spain, as well as the favorable conditions of German, Italian, and Spanish bonds compared to French debt. The shift towards looser fiscal policy in Germany and the digital transformation of asset servicing activities, such as the migration to CACEIS, are contributing factors to the optimistic outlook for Europe's business growth in the second half of 2021.
