The dominant theme so far this year was the shift towards more cyclical and value leadership, which actually started already back in March 2020 – at the low point of the market sell off. It reflected a particular strong inflection point in growth and inflation expectation as well as bond yield and yield curve directions following unprecedented policy support and progress on COVID vaccinations. Given that there were record valuation spreads between growth and value parts of the market prior to this inflection points, the shifts in confidence had a big impact on market leadership. The recent decline in bond yields and flattening of the yield curve has been associated with a switch out of value/cyclicals into growth/defensives again. This reversal of the rotation over recent weeks that was triggered by a change in the recovery/reflation narrative has been swift, raising many questions about future growth dynamics and where next for the reflation trade. There have been a number of catalysts. A slowing of US growth momentum and the peaking of all four China PMIs in June together with China's relatively unexpected 50bp RRR cut recently have raised concerns about a loss of global growth momentum. A sharp acceleration in the delta variant has added to this fear, while the shift in US dot plots with the US FED June minutes release has increased the focus of a possible policy error as a consequence of tightening policy too early. It feels that the market is stuck between the reflation narrative and the stagnation narrative in the absence of clear direction of the medium term trajectory as the COVID crises was an unprecedented one.
The Austrian equity market due to its pro-cyclical bias had a very strong run in the first half of the year and entered a period of volatile consolidation in July thanks to the above mentioned leadership changes in the market. While the first half of the month was driven by the selloff of the cyclicals (Banks, Energy, Industrials) they recovered in the last week of the month. The ongoing good earnings season is supportive for the recent rebound.
Autor:
Andreas Wosol
AMUNDI
Member of the board of ÖVFA
29 July 2021
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Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.