Of course, he notes that 2020 will remain in history as the year of the biggest recession since the Second World War. “Even during the great financial crisis of 2008-2009, we did not see the same level of decline. In particular, some parts of the world, including Asia, had escaped this huge difficulty.”

"Positive" because he points out that the leading indicators are on the right track thanks to the prospects of vaccines and the fact that, while the second wave was extremely tough on health, it did significantly less harm than the first from an economic point of view. The productive system is largely intact, as a rebound was possible in the third quarter and, this is the central point of de Callataÿ’s projections, namely that the increase in forced and precautionary savings has opened the way to a catch-up of consumption "if confidence is there."

"Gently" because, for de Callataÿ, patience will be necessary. "As we know, trust starts quickly and comes back only slowly."

In the medium term, he identifies four fundamental elements to explain his investment prospects. First of all, the “fait du prince”. "Some say that if the economy is bad, it’s because states have put a stop to activities due to lockdown. In the United States, where not all states have acted in the same way in terms of lockdown, the commercial decline has been roughly the same everywhere. This shows that, in addition to lockdown, the attitudes of economic agents prevail. "Let’s not attribute all the misfortunes to the states and let us remember that they intervened in a spectacular way. And they proved themselves as friends of the markets, which was not a given."

The second element is the disruption of the organisation of work in certain sectors. For de Callataÿ, this is as much a source of costs as it is source of opportunities. “We will have to accept the fact that there have been fewer bankruptcies than normal and that we will have to catch up” – the macroeconomic impact will be a concern only if we fail to avoid a cascading effect. "Weak links must be identified and abandoned to protect viable ones."

The third point is the nature of economic growth over the next 10 years, which is central to business profitability. "Businesses will not flourish if the global economy does badly." A follower of the “creative destruction” theory, Étienne de Callataÿ believes it is reasonable to expect that covid-related societal changes are likely to stimulate productivity gains.

The fourth point, “the most important”, is the increase in public deficits, which de Callataÿ sees continuing under the effect of citizen demand and which raise the question of who will ultimately pay. His hypothesis is that rates will remain low for at least a decade. Any increase would be dramatic for state budgets.

What are the consequences of these considerations on financial markets?

For de Callataÿ, the equity markets will continue to do well. This is not inconsistent with the weakness of the economy. Mainly because "what is listed on the stock exchange is not a reflection of the whole economy. The sectors of the economy that have suffered (horeca, entertainment, etc.) weigh on the stock market that is almost non-existent. On the other hand, the sectors that have benefited from the current difficulties (pharmaceuticals or technology) have a higher weight in the indices than their weight in the economy."

Moreover, the safety net offered by banks and states through low rates and direct aid will not be withdrawn for a long time. And while equities remain expensive, they remain, in relative terms, facing the limited opportunities offered by bonds. 

This article was originally published in French on Paperjam.lu and translated and edited for Delano.