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Spending Surge Signals Demand

May 10, 2021

2 min read

Karen Watkin, CFA| Portfolio Manager—Multi-Asset Solutions

David Hutchins, FIA| Portfolio Manager—Multi-Asset Solutions

Inventory and Investment Reversal Could Spark Near-Term Activity

Global inventories were way down in late 2020, suggesting pent-up demand, and capital expenditures are way up in major markets.

Historical analysis does not guarantee future results.
Left display as of February 24, 2021; right display as of February 22, 2021
EAFE: Europe, Australasia and the Far East; EM: emerging markets
Inventories cover large-cap firms, excluding financials. Capital expenditure growth based on MSCI ACWI.
Source: FactSet and AllianceBernstein (AB)

Global indicators continue to signal a sharp business recovery from last year’s COVID-19 pandemic lows. While inflation expectations are increasing as a result, business improvements offer multi-asset investors good reasons to remain tilted to equities for the next stage of the recovery.

Vaccine rollouts and new or extended lockdowns, where needed, seem to be further containing the virus, although some countries continue to struggle. New cases overall are trending downward, which should lead to more reopenings and further economic gains in many regions.

While the strength of consumer spending is likely to be a driving force for growth this year, so too will be the increased spending from businesses. Pent-up demand due to severely depleted inventories last year (Display left, above) and major year-over-year boosts in projected spending (Display right, above) are rapidly generating strong business activity around the world. And these trends are supporting improved revenue growth outlooks for many companies, especially manufacturers.

Of course, rising business activity may also fuel a short-term pickup in inflation (reflation). However, since inflation is starting from a historically low and stable level, we don’t see it as a major risk. In fact, our analysis shows that inflationary regimes that begin from below the 2% target rate have historically been a boon to equities and real assets over time. And key positive return signals of company quality, strong balance sheets and growth potential offset negative indicators like inflation, rising yields and stretched valuations, in our view. In this environment, we think multi-asset investors should consider a modest overweight to equities, while leaning into real assets, which should also do well if inflation is reawakened as the economic picture improves. With a selective approach, investors can avoid market segments and companies that are still vulnerable to COVID-19-related fallout while benefiting from the most promising recovery-driven potential across asset classes.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

About the Authors

Karen Watkin, CFA

Karen Watkin is a Senior Vice President and Portfolio Manager for the Multi-Asset Solutions business in EMEA. Along with being Portfolio Manager for the All Market Income Portfolio, she is responsible for the development and management of multi-asset portfolios for a range of clients. From 2008 to 2011, Watkin was portfolio manager for the Index Strategies Group, responsible for the development and management of AB’s custom index strategies for institutional clients in EMEA. She joined the firm in 2003, after spending three years as a management consultant in the Capital Markets Group at Accenture. Watkin holds a BA in economics with European study from the University of Exeter and is a CFA charterholder. Location: London

David Hutchins, FIA

David Hutchins is a Senior Vice President and Head of AB's Multi-Asset Solutions business in EMEA. He is responsible for the development and management of multi-asset portfolios for a range of clients. Hutchins joined the firm in 2008 after spending two years at UBS Investment Bank, where he was responsible for devising and delivering innovative capital markets risk-management solutions for pension schemes. Prior to that, he spent 13 years at Mercer, where he served as a European principal and scheme actuary, providing trustee and corporate advice to a range of UK pension funds and their sponsors. Hutchins holds a BSc in mathematics and a PGCE from the University of Bristol. He has chaired the Investment Management Association's Defined Contribution Committee and formerly chaired the defined contribution industry working group for the UK government's "defined ambition" project. Hutchins is a Fellow of the Institute and Faculty of Actuaries. Location: London

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Spending Surge Signals Demand

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