Is the return to normal faltering? 05-08-2021

Covid-19 isn't going down without a fight

Infections are declining once more in the UK. However, in other countries with high levels of vaccination coverage, such as France and the US, the number of infections is on the rise again.

The virus is still very much present, but fortunately the increase in hospital admissions (and referrals to intensive care) remains rather limited.

As a result, new, strict lockdown measures may not be necessary, but even so continued vaccination remains the order of the day.

Economy firing on all cylinders, growing pains a temporary phenomenon

After a strong economic recovery in China, followed by the United States of America, it is now Europe's turn. Following the example of industry, the service sector is now also getting back on track. High hopes for growth are seemingly being fulfilled as a result of rapid vaccinations, major public expenditure and delayed consumer demand. This strong economic growth is translating into a robust recovery for corporate earnings, which were again much higher than forecast for the second quarter.

Rising demand for goods and services is putting some pressure on available capacity. Tightness and higher prices are emerging in a number of sectors, significantly pushing up inflation as a result.

These may be temporary factors that will fade as economic life normalises. In any case, OPEC has already shown its willingness to increase oil production to meet strong demand.

Interest rates remain low

Central banks are leaving no room for doubt that any changes to their flexible policies will only be gradually introduced. Both the Fed and the European Central Bank (ECB) continue to provide plenty of support for the economic recovery.

Fears of inflation are also receding on the bond market, resulting in a sharp fall in yields. We don't expect an increase any time soon, which is limiting investment opportunities in bonds. As regards the bond component, we are investing heavily in corporate bonds.

However, we are opting mainly for shares and have a preference for sectors that are benefiting from the economic recovery, in particular the consumer goods and leisure sectors. We're also backing companies in the financial sector, while at regional level we are ‘following’ the vaccination route and going all in on Europe.

Besides this long-term vision, protection and trends on the financial markets are important aspects too. Your personal investment, which you can see in KBC Mobile and KBC Touch, may have a different composition that takes account of your comfort zone.

Tom Mermuys, Senior Investment Strategist KBC Asset Management
Covid isn't going down without a fight, but vaccines are offering a way out. As a result, the global economy remains firmly on the path of ‘returning to normal’. We are focusing on shares, and opting for sectors and regions that are benefiting greatly from the recovery in consumer spending.

Editing ended on 5. August 2021. This document is a publication of KBC Asset Management NV (KBC AM). The information in it can be changed without notice and offers no guarantee for the future. Nothing in this document may be reproduced without the prior, express, written consent of KBC AM. This information is governed by the laws of Belgium and is subject to the exclusive jurisdiction of its courts..