Is Now The Time To Buy Europe? | The Big Conversation | Refinitiv

TL;DR

Despite a potential lull in the reflation trade, the overall view is optimistic, with expectations of growth holding up in 2022. China faces regulatory challenges, while Europe offers great value opportunities. Caution is advised, and a weakening dollar could accelerate interest in value and reflation themes.

Transcript

Over recent weeks, we've seen momentum  in the reflation trade start to falter.   Most of the perspective on this subject  have been based around the views of US   investors. But China is equally an important  part of this narrative. In this episode of The   Big Conversation, Refinitiv's Garett Lim speaks  to Steve Brice, the Chief Investment Offic... Read More

Key Insights

• 🍦 The reflation trade is expected to continue, with a potential soft patch before growth resumes in 2022.
• 😘 Inflation is driven by transitory factors, including low base effects, supply disruptions, and labor market challenges.
• ❤️‍🩹 The Federal Reserve is likely to taper towards the end of the year, but market weakness could delay the tightening.
• 👋 Preferred sectors for investment include value plays like financials and energy, with Europe offering good opportunities.
• 😀 China faces regulatory challenges, and caution is advised in investing in the Chinese equity market.
• 💰 The dollar is expected to weaken, which could benefit value and reflation themes.
• 🌍 Investing gradually and diversifying is recommended, with a focus on Europe and potentially emerging markets.

Questions & Answers

Q: Is the reflation trade still in play?

Yes, the reflation trade is expected to restart later this year after a potential soft patch. Strong growth and eroding excess capacity contribute to this view.

Q: What factors contribute to the current inflation and will they subside?

Inflation is driven by low base effects, supply disruptions, and labor market challenges. As people return to work and excess capacity is addressed, inflation is expected to decrease in the short term.

Q: When will the Federal Reserve start tapering and what could delay the tightening?

The Fed is likely to announce tapering by the end of this year and begin in early 2022. However, significant equity market weakness could delay the tightening, as seen in the taper tantrum.

Q: What are the preferred sectors for investment and why?

Value plays such as financials and energy are favored due to expected higher bond yields and oil prices. Europe is seen as a good opportunity for equity exposure, while caution is advised in China due to regulatory challenges.

Summary & Key Takeaways

• The reflation trade is expected to continue, with a potential soft patch before growth continues in 2022. Inflation expectations will remain above 2 percent.

• Transitory factors contributing to inflation include low base effects, supply disruptions, and labor market challenges. These factors are expected to subside, leading to lower inflation in the short term.

• The Federal Reserve is likely to announce tapering towards the end of the year and start tapering in early 2022, but a significant market weakness could delay the tightening.

• Preferred sectors for investment include value plays, such as financials and energy. Europe is seen as a good opportunity for equity exposure, while caution is advised in China due to regulatory challenges.