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The Day After

In this series of papers entitled “The Day After”, we share with our clients our thinking on what the long term implications of the current, unprecedented crisis on the investment landscape could be.

These papers are published regularly on the Research center and each document includes at least an English and French version as well as a podcast.


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The Day After #13: How will Central Banks impact the equity markets in the post-Covid world?

Interest rates are at an all-time low, and even if inflation eventually picks up, it could take some time. Central banks, the first pillar of the investment cycle, are adjusting and are resolutely accompanying governments in this final battle against deflationary threats, at the risk of losing some of their independence.

The resulting low level of real interest rates boosts risk premiums, supports equities over bonds, and leads to growth stocks being overvalued vs. value stocks. Reducing this excess will be achieved by a rebound in value stocks, which will notably benefit from the steepening of the yield curve in the recovery phase. However, as interest rates will remain low and disruption is now part of our daily reality, it is likely that growth stocks will eventually surprise upwards again in this cycle.

Several risks could disrupt this optimistic reading of the impact of central banks on equities: central bankers’ willingness will be tested at the first signs of inflation. Their communication will have to be particularly pointed. A premature about-face on fiscal accommodation by some governments would also raise doubts in the markets. Finally, a failure of stimulus and reflationary policies remains possible; the low interest rate environment is part of the solution, but is also a symptom.

The thirteenth issue of the series "The Day After", is written by Éric Mijot.








Couverture #1


Couverture #2


Couverture #3


#1 Covid-19: the invisible hand pointing investors down the road to the ‘70s


#2 Learn the rules like a pro, so you can break them like an artist


#3 Covid-19 crisis and the ESG transformation of the asset management industry 


To start “The Day After” series, in this first paper, we highlights the key reasons the current crisis could be the trigger for a regime shift that could, in the long run, lead to a new equilibrium with features similar to those seen in the ‘70s.


The second paper highlight one crucial consequence of the crisis: the vanishing – and probably for long – of most of the established economic rules liberal democracies were living by since the advent of the “Washington Consensus” and the ideological revolution of the 1980s.


The Covid-19 crisis -- which unleashed an economic and financial shock of unprecedented magnitude -- has impacted businesses in a variety of ways. The asset management industry was confronted with sell-offs of traditional assets, but investment flows in environmental, social and governance (ESG) funds proved resilient. 











Couverture #4


Couverture #5


Couverture #6


#4 Inequality in the context of the Covid-19 crisis


#5 New Frontiers for Central Banks


#6 Inflation: persistent headwinds but a possible inflationary cocktail


In this paper, we explain why and how we expect the COVID-19 crisis to accelerate this phenomenon in the months and years to come, and also present action levers for investors.


The Covid-19 crisis has triggered the strongest global recession ever seen. In order to avoid a major financial crisis, CBs and governments have been quick to put in place large-scale programmes.


In this edition of the “Day After” series, we outline our views on inflation, both short- and long-term, and we argue that we may be at the cusp of a complete regime shift.











Couverture #7


Couverture #8


Couverture #9


#7 Climate change post Covid-19: A crisis at a crossroad


#8 Deglobalisation could improve diversification but also exacerbate financial contagion


#9 Covid-19 crisis, a catalyst for change and strengthening the EU


This year was supposed to be the year in the fight against climate change. Instead, 2020 has become the year of the coronavirus pandemic. In this paper, we look at what the coronavirus could mean for climate change in the near and medium term.


In recent years, world trade dynamics have definitely shown an accentuated inversion of the globalisation trend and its robust contribution to global economic performance. The unexpected advent of the Covid-19 pandemic has simply added momentum to a trend that began a decade ago.


The Conference on the Future of Europe will probably open in September in a very different context than initially expected. Who will chair it and whether a new treaty for the union will be on the agenda remains unclear, but the need to address the repositioning of Europe post Covid-19 pandemic is clear.











Couverture #10


Couverture #11


Couverture #12


#10 Rethinking the macro and cross-asset research : what we have learned from the Covid-19 crisis


#11 Post-crisis narratives that will drive financial markets


#12 Changing shares of labour and capital incomes: what implications for investors?


Crises create disruption and Covid-19 is no exception, bringing new complexities, new opportunities and new risks to the investment landscape. This tenth issue of the series "The Day After", Rethinking the macro and cross-asset research: what we have learned from the Covid-19 crisis is written by Monica Defend.


Today, investors have a unique opportunity to observe the spreading of a real virus alongside the viral nature of financial markets and the real economy. As Nobel Prizewinning economist Robert Shiller points out in his book, Narrative Economics: How Stories Go Viral and Drive Major Economic Events, “stories and images are created around new economic events”. In some cases, these stories are memories of the past and their spreading can have major implications regarding economic and financial markets.


The share of national income that is distributed to labour vs. capital has fallen to historically low levels in several advanced economies, such as the United States and the United Kingdom. We believe the Covid-19 crisis, along with other factors, will trigger a rebalancing in favour of labour over the next two decades. A reversion to the long-term average ratio of labour and capital in the share of income would probably enhance social and political stability, and would better fit with a consumer-driven growth model. 





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