Multi-Asset Sputnik. July 2020 - Navigating the Covid Waves

The torpor of summer is upon us, but rather than entering its traditional lull, the global economy is venturing forth on the path to recovery following the previously unimaginable disruption caused by Covid-19. Fueled in no small part by large-scale fiscal and monetary stimulus, markets have recovered much of the decline suffered as the pandemic swept across the globe. We expect this nascent recovery to pick up steam in 3Q20, although it may not be entirely smooth sailing - bouts of risk aversion triggered by renewed outbreaks of the virus remain a distinct possibility. > Global FX/rates. As the global economy has started to recover, the greenback has retreated against DM peers and some EM currencies. In 3Q20, we expect the recovery to gather pace, providing more support for EM FX.> Global bonds. EM paper is still trading at wider spreads than pre-crisis; we think the rest of those losses can be fully made up in 3Q20, if worries over second waves of the coronavirus can be overcome. We favor credit risk over duration and consider FX debt to be better shielded from potential bouts of risk aversion.> Global equities. Valuations are reaching multi-decade highs, suggesting heightened sensitivity to any risks to the global recovery. This leads us to favor conservative positioning.> Oil. Following a period of gradual transformation, we expect the market rebalancing to gather steam and spark a new upward trend in Brent.> Gold. The outlook for the metal remains strong in light of rising investor demand and leading central banks' capacity to loosen monetary policy.> Coal. We cautiously anticipate a modest recovery in coal prices in 3Q20, though fundamentally the market remains oversupplied and it is difficult to gauge exactly how long the demand shock will last.> Russian equities. A benign but unpredictable global backdrop leads us to favor stocks with reliable dividends or other known future positives. Select utilities, telecoms and energy stocks best meet the criteria.> Russian Eurobonds. Russian country risk will likely continue outperforming EM peers during periods of heightened market volatility. We favor the middle of the sovereign curve and select high-yielding paper in the corporate segment.> Russian FX/rates. The ruble should keep firming as oil prices and the global economy recover. We see it reaching 66 to the dollar in 3Q20 and 64 in 4Q20.> Ruble bonds. Amid CBR rate cuts and the looming revision to the long-term inflation-neutral key rate, long-term yields could drop 50 bps by the year-end.