Post-COVID 19 markets: investment opportunities in Asia, Europe, and the Americas

It is not always easy to choose a path when it comes to investing: equities, bonds, currencies... And with a pandemic in the way, things get even more complicated. And with a pandemic on the horizon, things get even more complicated. You have to bear in mind that people are adapting to the 'new normal', and with them, companies. Some will be successful in adapting; others, with the economy back on track, will take off again after more than three months on the tightrope; and there will be a third group that will fall through the deep hole that the COVID-19 has left in their accounts.

How to invest in this context? Experts point out two fundamental pillars: long term and flexibility. In flexible funds, managers adapt their strategy according to events, something that is very necessary in these times of instability: "We believe that the markets will trade within wide and volatile ranges in the coming months. Thanks to our flexibility, we can adapt our asset allocation and find the best solutions," explains the French fund manager Carmignac.

The opportunities, in three sectors: eCommerce, technology (e.g. fintech and electronic payment) and health

Asia, Europe, America... investment opportunities multiply when covering a wider universe, achieving a more diversified portfolio and thus mitigating risk. You just have to know how to find them with those who know how to shape the portfolio by combining fixed and variable income. The three strategies in Carmignac's Patrimoine range are based on this idea: one focuses on global investments, one on European investments, and one on emerging markets. How is the French firm managing its portfolio? Where are these opportunities?

At a global level

The Patrimoine strategy invests globally in both fixed income - with a minimum of 50% of the portfolio - and equities. "This has given us the opportunity to be very flexible, managing portfolio sensitivity and reducing our exposure to equities to close to zero," explains David Older, head of equities. In general, the evolution of the economy "has led us to return to selective exposure to quality companies that have experienced a temporary interruption in their activity, such as Amadeus or Booking in the tourism sector," for example.

In public debt "we continue to prioritize countries whose central banks have room for maneuver to act".

On the credit market, Carmignac managed its portfolios around four themes: the shortest maturities in the United States, the longest maturities in investment-grade securities in Europe, corporate finance debt, and companies affected by the Covid-19 crisis. In public debt "we continue to prioritize countries whose central banks still have room for maneuver to act".

In Europe

Through the Patrimoine Europe strategy, the manager has identified values in "innovative areas such as biotechnology, renewable energies - especially wind and solar - and certain industrial segments". However, the health sector is also one of the major players: "In our equity component, it has been one of our long-term convictions and is currently the sector to which we are most exposed," says the fund manager.

In fixed income, the manager invests in Italian sovereign debt, which is at attractive levels following the launch of the recovery fund and the forthcoming TLTRO. It also focuses on German sovereign debt - nominal rates and inflation-linked bonds - as it trades at higher levels than US Treasury bonds. In corporate debt, the manager continues to identify opportunities both in the primary market, where assets are being issued for the first time and in the secondary market, where those already issued are being exchanged.

In emerging markets

With the Emerging Patrimoine strategy, the firm is moving around an idea: China is the clear winner of this crisis. It is one step ahead, has been the first to leave the confinement behind and has known how to play its cards well: "Instead of injecting credit indiscriminately, as on previous occasions, it designed a slowdown and channeled the credit towards key sectors of the economy such as technology, artificial intelligence, health or electric vehicles".

The Asian countries "have higher relative growth and have managed to weather the crisis better than Western countries".

For this reason, although the firm's exposure to equities is low, Chinese companies are one of its preferred options in this market, especially in the technology and Internet space. On the other hand, the fund has very low exposure to oil-exporting countries in EMEA (Europe, Middle East, and Africa) and Latin America. For importers, the outlook is more promising, especially in Asian countries, which "have higher relative growth and have managed to weather the crisis better than Western countries". In fixed income, "we have prioritized foreign currency-denominated debt that offers attractive returns, especially Romania, which benefits from the European recovery fund".

Investment options around the COVID

In general, for the manager the opportunities are mainly in three basic sectors: e-commerce, technology (e.g. 'fintech' and e-payment), and health. Why? In the first case, the reason is clear: a change in habits that tends to online shopping. In the second, "the fear of touching money, called 'dirty' money, made digital payments increase during the crisis, a trend that will continue," but also has experienced significant growth areas such as video games, the development of 'software' or 'big data'. In the third, the management company invests in companies that develop vaccines, research medical technologies, or study how to improve hospital care. But that's not all: "The fear of sitting in a waiting room has driven the development of online medical advice, especially for the most common symptoms". Even in the health field, the manager shows a preference for Chinese companies, "more advanced in terms of telemedicine," says David Older.

In short, it is a question of small and large investors, when moving their savings, aiming at the options that are most likely to offer them a return. But never forgetting the two essential ingredients of any investment: the long-term time horizon and flexibility.