Our outlook

Weekly View - No tech immunity

The CIO's view of the week ahead.

César Pérez Ruiz, Head of Investments & CIO, Pictet Wealth Management

Weekly View - No tech immunity

The Pfizer/BioNTech breakthrough and the expectation that other vaccines will follow closely mean that we should avoid the grim scenario of a third or fourth wave of the pandemic. Of course, when precisely these vaccines will be ready for distribution and the extent to which the general population will accept to be vaccinated remain to be seen. But last week’s announcement makes it likely that economic recovery will progressively gain a firmer footing next year—to the benefit of value/cyclical stocks that have long underperformed their ‘growth’ style, especially in tech-related, rivals. Yet, as we wait for confirmation that value stocks can improve their relative performance in a sustainable way, it may be too early to abandon tech stocks, which continue to benefit from nominal bond yields that we think are set to remain low. Still needing to see a sustained recovery and/or a fiscal package we believe the sensible option for now is to look at the equal weight S&P 500 index to diversify from the big mega stocks that increasing dominate non-weighted indexes.

The Chinese authorities’ dramatic derailing of Ant Financial’s IPO should not be viewed in isolation. The issuing of guidelines to counter monopolistic practices in the internet industry and moves to rein in nonbank credit platforms suggest that economic security (and control) remain paramount for the Chinese government. Last week also saw the EU launch antitrust charges against Amazon. It is perhaps premature to call a ‘regime shift’ but the increased regulatory risk that Big Tech is facing certainly needs to be kept in mind when investing.

As Brexit talks enter their endgame, the election of the pro-EU Joe Biden in place of the pro-Brexit Donald Trump may further increase pressure on Boris Johnson to avoid a ‘hard’ Brexit. The departure of hard Brexiteers such as adviser Dominic Cummings is another pointer towards a UK-EU trade deal of sorts. These developments, plus signs of stabilisation in coronavirus infections in the UK, could be positive for UK assets in the short term and for sterling, including against the US dollar.

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