Saxo Q3 Outlook: Asia investors looking to Europe should focus on the UK, while China’s lagging tech names climb

HONG KONG, 29 June 2021 – Saxo Markets, the online trading and investment specialist, has today published its Q3 2021 Quarterly Outlook for global markets, including trading ideas covering equities, FX, currencies, commodities and bonds, as well as a range of central macro themes impacting client portfolios.

All eyes are on the German election on 26 September, where a Black-Green alliance is a likely outcome, and there is a chance of the Greens getting the keys to the Chancellery.

Steen Jakobsen, Chief Economist and CIO at Saxo, says: “This would be a revolution. The Green Party is pro-EU, anti-Russia and China, against the Nordstream2 project and, not least, very much in favour of removing the German Schuldenbremsen, or “debt brake”, that drives the policy of reflexive German fiscal austerity.”

“The German election will most likely also show how the young generation’s politicians need to be different. Ms. Merkel was personally a big part of the German export miracle but she failed to invest in German infrastructure. She was the ultimate compromiser. But the young people of Europe want the opposite: a vision for a Europe, one that is greener and with the hope of a good job and access to the real estate ladder, not one that is about old politicians looking at yesterday’s priorities and defaulting always to a policy of not rocking the boat,” Jakobsen adds.

Asia investors looking to Europe should focus on the UK, while China’s lagging tech names climb

Approaching the European Union (EU) as a large conglomerate, the UK represents the spin-off which gives a company the ability to be laser focused on their own objectives and on fulfilling the needs of their stakeholders. As a result, there is reason for Asian investors to be bullish about both UK assets and the economy as a whole.

“Asia investors looking to Europe should keep it simple and focus on the ‘spin-off’ that is the UK,” says Kay Van-Petersen, Global Macro Strategist at Saxo Markets.”

“The case for being structurally bullish about UK assets comes with several running risks, including new Covid strains, the border situation in Northern Ireland and a stronger GBP challenging exports. However, there are a number of potential tailwinds for a long-term bullish stance on UK assets.

“For example, with Brexit turbulence behind it, the UK market is one of the most underweighted on a global landscape. The FTSE 100 is one of the few major equity indices that never got back to their pre-Covid levels of 7,500 and has heavy exposure towards cyclicals like financials and commodities should do well in an inflation and rates-rising regime. While we’ve seen much clearer evidence of asset class inflation in places like the US and Canada.”

“Furthermore, sterling is still at multi-decade lows and the BoE has moved to discussions around tapering and a more hawkish policy. The UK has also been one of the leading countries globally on the vaccine roll-out and it will emerge to some serious spending both by consumers and companies. Finally, the UK will always be a destination for the global elite and if they need to be the offshore private banking centre of Europe, they will.”

On what the developments in Europe mean for markets in Asia, Edison Pun, Senior Market Analyst at Saxo Markets, says: “The German elections is a significant event that may increase friction between China and other countries, and related political risks will increase accordingly. However, the goals of green energy construction in all countries are basically the same, so even when the political risks increase, we believe the green energy industry can still maintain a state of outstanding performance.”

“In the meantime, Chinese technology stocks have been lagging behind other markets recently under the influence of related policies, and their share prices have been relatively low. However, the profit growth of large technology names remain at an ideal state. It’s reasonable to believe that along with the United States' large-scale technology breaking the top again, China’s tech names get the chance to be worthy for investors to pay attention again.”

“In the past few years, shipping-related infrastructure has not received sufficient investment. In the post-pandemic period, the shipping industry's demand has recovered rapidly, yet the supply has not been able to catch up due to bottlenecks, which has caused the shipping industry to be in short supply, so the shipping industry-related stocks are expected to move very well in the third quarter,” Pun adds.

The Greens Come of Age – Why should markets care?

In September, a potential Green party victory or strong governing share brings with it the capacity to radically mold both German and European policy agendas in the years ahead along environmental and economic lines. It points to the rise of a new generation intent on mitigating climate change and reducing emissions through a lens of equality and social justice.

“A strong governing share with our baseline call of a black-green government, or potential victory with Annalena Baerbock becoming the first Green chancellor, would be a historic shift for Germany,” says Eleanor Creagh, Market Strategist for Saxo Markets.

“Why should markets care? The Greens’ growing electoral clout provides an opportunity to pioneer a number of structural changes. Core policy includes pledges to achieve a 70% reduction in greenhouse gases from their 1990 level by 2030 achieved through phasing out coal power, accelerating Germany’s renewable energy transition, investment spending on green infrastructure and only allowing zero-emission cars from 2030 onward.”

To access Saxo Bank’s full Q3 2021 Outlook, with more in-depth pieces from our analysts and strategists, please go to:
https://www.home.saxo/insights/news-and-research/thought-leadership/quarterly-outlook