Transcription

• Disclaimer

  This podcast is only for the attention of professional investors in the financial industry. Outerblue by Amundi. Welcome to Outerblue Convictions, Market Analysis and Asset Allocation Views.

• Swaha Pattanaik

  Hello and welcome to this Amundi podcast about the latest moves in the world of markets and macroeconomics. I'm Swaha Patannaik, the Head of Publishing and Digital at the Amundi Investment Institute and it's my great pleasure to welcome the head of the Amundi Investment Institute, Monica Defend. Thanks for joining us, Monica.

• Monica Defend

  Thank you, Swaha.

• Swaha Pattanaik

  So we're recording just after we've had a battery of news on US tariffs. It's completely upending what we were going to talk about, but that's okay. The US president did warn us that the most beautiful word in the dictionary was tariffs. So let's start with the pretty sweeping across the board 10%, maybe going up to 15%, tariffs that we are now talking about. How much is this changing your view on where the US economic outlook and policymaking on the monetary front may go?

• Monica Defend

  Yes, Swaha, let's talk about this wonderful world of markets and macro. Honestly, in general, this month's data did not change the direction of travel of the cycle. We think that the the latest news on tariffs actually are not going to change the overall framework of a controlled disorder of a macro economic cycle that is going to continue with this bargaining that will come from the US administration and the rest of the world. But I want to really read the the glass as full. I hope that this will be just giving acceleration to regions such as Europe to move forward because the past is past and we are really facing a new regime. If nothing has changed basically on the macro framework, what has changed is really what is driving the market. So it will be quite an interesting discussion that we are going to have in the minutes to come.

• Swaha Pattanaik

  Absolutely. I mean, what is driving the market is, I guess you have good reason to feel smug about it, many of the factors that you were talking about in the outlook for 2026 are playing out. You mentioned controlled disorder. But you were also talking about diversification, the need for strategic autonomy. We've really been seeing that kick in in the first few months of this year, where we've had some very important events like the Davos or the Munich Security Council, where this has really come out very clearly.

• Monica Defend

  Yeah,exactly.

• Swaha Pattanaik

  Can you explain a little bit more about that?

• Monica Defend

  Yeah, sure. With two big differences, because I had the perception in Davos, to thoughts and discussion being put there, but the Munich Security Conference being really the follow-up in terms of tangible actions to be taken. Think about what the ECB, for example, has been doing. But to stick to your question, I think there are two main changes. The one in the global framework, we are moving from an environment of almost synchronized policies and liquidity abundancy to a framework that is, as we were expecting, driven by reorientation of industrial policies in the name of national security, balance sheets and capital allocation on decisions that are now setting the prices. So it's really a transition towards something that is more fragmented and the market environment that is really more selective. The second big change that I see is this transition from AI 1.0 language models into AI 2.0 physical and industrial applications of AI. And what we are seeing, looking also at the reporting season, is that CAPEX is really broadening across sectors. We will see what Ndivia will report, and they have the key of success for the technological sector. But really, there is a sector rotation in place towards real economy, investment, tangible assets, and in terms of sectors to industries. And these are trends that are set, and that are going to last, in my opinion.

• Swaha Pattanaik

  Thank you. I mean, we're talking long-term, but it's also playing out in the short term and tactically because we're seeing this AI 2.0, but the disruptions that could bring is upending a lot of sectors that hadn't necessarily been expected to be hit quite so soon by AI. How are you and your teams thinking about the investment allocation decisions as a result of what you're seeing here?

• Monica Defend

  Well the first check we did was exactly on CAPEX to see if there was a reorientation from the hype that we've seen. Levels are still very high but in terms of medium-term expectation three years out there seems to be some convergence. There are, as you were mentioning, some sectors that are particularly hit, software. But this is again something that is part of this 2.0 wave where you are really seeing how AI can be implemented. And there has been reports on the markets. I really think that what is missing, it is true, and we need to worry about these changes in the job market that might particularly, that might be painful, for the white colors for example, and this is what has been pressing by the market. But new jobs are going to be created in a population that is not exactly leaving a demographic dividend in favour so I really think there is a reset of the rules and we need to focus on those gaps that are opening and how these are going to be filled. But definitely the job market was, and will be, an important sentinel to look at. But changes are in place. Maybe they are much faster, honestly, than what we were expecting.

• Swaha Pattanaik

  That said, you were calling for diversification, which has worked out very well given the sort of market, I won't say shifts out of stocks necessarily, but within the stock market that you have been seeing. What are you expecting in terms of diversification? And I remember you talked about equal-weighted stocks as well at the end of last year. What is your thinking on those fronts?

• Monica Defend

  I think that diversification will remain key in an asset allocation perspective. So not only on the equity market where definitely we were out of these high, rich in valuation, and concentrated markets as you were mentioning, the equally weighted index. There is an acceleration in talks from investors towards other regions, Europe, emerging markets by nature is such a big universe that including on the technological front can offer some good diversification opportunities. But I wouldn't underestimate the role of commodities because of some long-term trends. If we look at gold because of this industrial orientation, if we look at copper or silver. And equally on the fixed income component where the big trend we see is this global steepening with long-dated maturity moving higher in the US as well as in Europe, as well as in Asia, notably Japan.

• Swaha Pattanaik

  Let me just loop back to what you were talking about in gold. And you were talking about a sort of midterm, longer-term view that you have. We did see quite a sharp retracement in gold, though, since we last spoke. I mean, that may be sort of crowded positioning, all sorts of things. But do the factors that you were talking about for seeing gold as the new sort of safe haven that's moved away from, say, a dollar base in reserves by central banks. Are those and other factors still at play? What sort of targets do you now have in mind for gold?

• Monica Defend

  So there is a structural story that really relies on this structural demand that is coming from central banks. So long-term investors diversifying out of reserves. Probably we'll see, and this is going to be set by the public sector. What is happening in the private investors' environment, it is what is inflating these short-term swings that we see, because gold has been in demand from retail investors on ETF. And this creates this short-term volatility that will likely persist. And with the US dollar, that is less evident as a diversifier in the portfolios, as gold is materially doing this job, this is going to lessen. So a structural trend, we have 5,300 as a target. Honestly, plus 10, minus 10% volatility in the price is likely to be seen.

• Swaha Pattanaik

  Okay, thank you, Monica. So, one of the other very strong convictions you have, and you mentioned as well, there on emerging markets. So let me ask you what sort of long-term opportunities you see there, but also in the short-term, maybe I could pick up on India specifically. That was one of the bright spots you'd, you know, economically that you've talked about. What is the outlook after the budget that we've seen this sort of this month in February for India, particularly the EM in general?

• Monica Defend

  Yeah. India honestly is one of the structural investment themes that we like and that has also short-term appeal. India is continuous actually to stand out with the tariffs and again what has been announced from the administration again is going in favour India and we see an acceleration in the manufacturing investment. When we go to the fiscal budget, that was an important piece of news release, we see a mild fiscal consolidation, a strong CAPEX orientation. This is very important. And stable monetary easing. So India remains one of our clearest asset allocation goals. I'm aware that it is expensive, but honestly I think that there are fundamental reasons that structurally justify these prices.

• Swaha Pattanaik

  So let me for our final question, bring it right back home to Europe. So you were at Davos, you were at the Munich Security Council. Europe has been talking for a while about the need, as you were saying, for strategic autonomy. Are you seeing the reform that you have always said we need to see and the measures that we would need to get going on to have the strategic autonomy that is becoming more and more imperative in the current geoeconomic climate?

• Monica Defend

  Well look, there is a series of EU meetings coming. The one in March I think will be quite relevant because the one in February was an emergency one to discuss on Greenland soon after Davos, so there was really not much to be expected. But Draghi and Letta presented a roadmap, a strategy, two years out with some clear signposts to be discussed and validated at the March meeting. And so this is going to be quite an interesting one to see how from willingness, we are really talking about implementation. And this was the sense that I had at Munich. when compared to Davos. An important and striking thing that happened was Lagarde announcing the repo line. Why it was striking to me? First, we were talking about monetary policy and something to happen on the third quarter of this year, right now at the Security Conference in February. It means that also from the monetary policy perspective, there is this sense of action. So, if you want really, this was a clear sign that things are really moving and I'm convinced, I had really had the perception there that we are moving from a system that was seeking efficiency to a system that is seeking resilience. And this is taking various forms. It can be the monetary policy, it can be the trade agreement we are having with India, it can be the roadmap to the single market, and the capital market union, and all the things that needed to be to be addressed by the various councils or parliamenta in the euro area.

• Swaha Pattanaik

  Thank you, Monica. So probably more to come on that. We have an EU summit soon in the not too distant future, which we can come back and talk about of what that means for Europe. But thank you very much for joining us today and sharing your thoughts.

• Monica Defend

  Thank you, Swaha.

• Swaha Pattanaik

  And thank you for tuning in to this podcast. There are more from the Amundi Investment Institute and Amundi on the website. Thank you very much.

• Disclaimer

  This podcast is only for the attention of professional investors as defined in Directive 2014-65-EU dated 15 May 2014 as amended from time to time on markets and financial instruments called MIFID II. Views are those of the author and not necessarily Amundi Asset Management SAS. They are subject to change and should not be relied upon as investment advice, as a security recommendation, or as an indication of trading for any Amundi products or any other security, fund units or services. Past performance is not a guarantee or indicative of future results.