#Market Strategy — 06.08.2020

The two risks at the top of BNP Paribas WM chief Bronès’s agenda

Interview from Chris Sloley, Editor at Citywire Selector

Beyond the Covid-19 pandemic, Florent Bronès sees just as much danger in the political and economic tensions between the US and China.

Florent Bronès 2015

Florent Bronès

Chief Investment Officer
BNP Paribas Wealth Management

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Covid-19 has not gone away and it would be foolish to act like it has. The same can be said of the US-China trade tensions, which have become less prominent but definitely not been resolved.

That is according to Florent Bronès, Chief Investment Officer for BNP Paribas Wealth Management. Speaking to Citywire Selector, Paris-based Florent Bronès said many of the French firm’s investment themes had held fast during the 2020 market pandemic but talk of normalisation should be taken in the proper context.

Number one risk is, of course, Covid-19 because our scenario is that it’s not over,’ he said. ‘But the authorities know how to manage local clusters, as there are dedicated teams going into local clusters, and they do what is necessary for the pandemic to stay local.

‘I would argue we know how to manage the pandemic if it stays local. However, you can see in the US that is quite difficult in some parts of the world. That’s a risk of course for the speed of the economic recovery.

‘It is one of the reasons why we have a U-shaped recovery in our scenario, and I’m afraid that the markets are more positive than that and they are expecting a V-shaped recovery, which, we think, is a potential source of disappointment.’

Bronès also said the tensions between China and the US, which dominated much of the pre-pandemic political talk, cannot be overlooked. This, he said, is combined with the fact that the US also faces a presidential election this year.

‘It won’t be a surprise because we are well aware of that with the current US administration and the Chinese authorities disagree on a lot of things. They are strategically opposed on several items, technology for example. So it can come back very rapidly.’

Looking at potential upsides, Florent Bronès said a quick approval of a successful vaccine would be beneficial, as would the introduction of the much-discussed European recovery fund. Florent Bronès said it would be a much-needed fillip for the eurozone if a huge source of capital became available and drive a recovery.

‘One way to play the recovery is through compression strategies that we have on the bond markets will continue to be positively impacted by these events. When it’s voted in, spreads will probably continue to shrink. So we continue to be buyers of sovereign bonds in Italy, Spain, etc. At the moment we have been doing that during the crisis and we stick to that position, the compression is not over.’ Florent Bronès said corporate bonds could prove positive, because rates will continue to fall. He added that this will also benefit equities, primarily through cyclical sectors. ‘We increased our weighting in cyclicals, particularly in materials, not only because of this European recovery fund but because we want to play the recovery for the next 12 months. We are now neutral on industrials having been underweight before. So we are going to be more cyclical in our recommendations in the future.’