全球投資策略-思考2022年的收益：樂觀的理由-2021.7.26-27正式版

26July2021

Keycharts

Figure1:Mid-cycle,earningsbecomethekeydriverofreturns

50%

30%

10%

-10%

-30%

-50%

PEContributionto12mreturn

EPSContributionto12mreturn

USequities12mreturn

91

93

95

97

99

01

03

05

07

09

11

13

15

17

19

21

Source:Refinitiv,CreditSuisseresearch

Figure2:USrevenueforecastsseemlowgivenGDPforecasts…

20

US12mfwdsales,yoy%chg

11

21and22EPSgrowthforecast

9

15

USnominalGDPgrowth,rhs

GDPgrowthforecast

7

10

5

5

3

1

0

-1

-5

-3

2000

2002

2005

2008

2010

2013

2016

2019

2021

Figure3:…andGDPforecastscouldrisefurther

30

25

20

15

5 10

-5

0

-15

-10

-25

-20

-35

UScorecapitalgoodsorders,y/y%

-45

USrealprivatefixedinvestment,y/y%chg,rhs

-30

2000

2003

2006

2009

2012

2015

2018

2021

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

Figure4:Extech,marginsarenotextended Figure5:Taxhasmadeakeycontributiontomargins

21% USEBITDAmargins,12mfwdbasis

20%

19%

18%

17%

16%

15%

2.0%

ContributiontochangeinROEUSA2008-10averagevs

2019exfinancials

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

14%

-2.0%

2003

2009

2015

2021

TaxBurden

InterestBurden

EBITmargin

AssetTurn

Leverage

RoE

exTMT

market

Source:Refinitiv,CreditSuisseresearch

Source:Refinitiv,CreditSuisseresearch

GlobalEquityStrategy

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Thinkingabout2022earnings

Inclientconversations,wecontinuetoreceiveplentyofquestionsabouteventsin2021,inparticulartheoutlookfortheQ2earningsseasonandthelikelyquantumofGDPgrowthforthefullyear.Manyofthepolicy,labourmarketandpricingdynamicsthisyeararesoextraordinarythatsuchafocusisunderstandable.Inourjudgement,ithasmeant,however,thatthedynamicsfornextyearhavebeensomewhatunder-discussed,anddeservemoreattention.

Welookinthreepartsat2022EPS:1)webrieflyreflectontheimportanceofearningsatthisstageofthecycle;2)westresstestrevenueassumptions,findingthemalittleconservative;and3)weconsiderattheoutlookformargins,whereheadlinenumbersareoptimistic,butlookreasonablyunderpinned.OurUSequitystrategistsareslightlyaboveconsensusat13%EPSgrowthintheUSin2022(versusconsensusof11%)andweforecast14%EPSgrowthforEurope,around1.5p.p.aboveconsensus.

Part1:Theimportanceofearnings

Tosayearningsareimportantforequitiesistostatetheobvious,buttherearepointsintheequitycyclewhenreturnsbecomeparticularlyreliantuponEPSgrowth.Historysuggeststhatafterastrongre-ratingintoaneconomicrecovery,thenextphaseofreturnsbecomesearningsreliant.ThatmaybeparticularlytrueonthisoccasiongiventhattheP/EmultipleoftheUSmarketisnowatthetopendofitshistoricalrangeifwelookatboththemarketandatgrowthstocksspecifically.

Figure6:P/EofUSgrowthasastyle

50 USgrowth12mfwdPE Average(+/-1sd)

45

40

35

30

25

20

15

10

5

1995 1998 2002 2006 2010 2013 2017 2021

Source:Refinitiv,CreditSuisseresearch

Figure7:SimpleP/EofUSequitiesgoingback30or40years

US12mfwdPE Average(+/-1sd)

28

23

18

13

8

1985 1988 1992 1995 1999 2002 2006 2009 2013 2016 2020

Source:Refinitiv,CreditSuisseresearch

Ourtwo-factormodel,whichdrivesafairvalueP/EfortheS&P500usingtheyieldonTIPSandhigh-yieldcredit,suggestsc6%upsidetotheP/Eto22.6x,butthisfallsto-1%ifweputinourprojectionofthebondyieldandhigh-yieldspreads.

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Figure8:OurP/EmodelfortheUSimpliesonly6.1%upside,but-1%ifweuseourforecastsoryields

24

S&P12mfwdPEmodel

R2:82.5%

7%

22

6%

20

5%

4%

18

3%

16

2%

14

1%

12

0%

Jan-15

Dec-15

Nov-16

Oct-17

Sep-18

Sep-19

Aug-20

Jul-21

Actual

Model(linear;10yTIPSandUSHY)

Upside,rhs

Source:Refinitiv,CreditSuisseresearch

Figure9highlightstheevolvingcontributionofthemultipleandearningstoUSequityreturnsoverthepast30years.ProbablythemostrelevantanalogueistherecoveryfromtheGFC:then,itwasconsiderablemultipleexpansionthrough2009and2010thatfueledthestronginitialphaseofreturns,beforethemultiplestartedtomovesidewaystodownfrom2010throughto2013.Throughoutthisperiod,itwasearningsthatwerethekeydriverofthemoresubduedreturnsseeninthistransitionfromearlytomid-cycle.

Thatiswhatmakesadiscussionof2022earningsimportant.Aswemovefromtheabnormalperiodofintenserecoveryandpolicysupport,towardamorenormal‘mid-cycle’environmentcharacterisedbyawithdrawalofsupport,wherethat‘normal’paceofEPSgrowthsettlesislikelytobeacriticaldriverofourreturnexpectationforthecomingyears.

Figure9:Recoveriesfromcrisestendtoseemultipleexpansionpassthebatontoearningsasthekeydriverofreturns

50%

30%

10%

-10%

-30%

-50%

PEContributionto12mreturn

EPSContributionto12mreturn

USequities12mreturn

91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 21

Source:Refinitiv,CreditSuisseresearch

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Theconsensusoutlook

ConsensusexpectsS&P5002022USEPStobe$210,representinggrowthof11.5%onlastyear.WeatCreditSuissearealittlemoreoptimistic,withourUSstrategistJonathanGolubassumingEPSof$225nextyear,or13%growthoffhisassumed2021baseline.

Lookingattheevolutionofconsensus,thelevelofEPSassumedfornextyearhasbeenmovingupsteadily,thoughthegrowthratehasbeenmovinglowerasPresidentBiden’sfiscalpackageservedtobringgrowthforwardinto2021.

Figure10:CSestimates13%EPSgrowthin2022…

250

13%growth

8%growth

41%growth

200

CSS&P500EPSestimates

150

100

50

0

2019

2020

2021

2022beforetax2022assuming

changes

taxchanges

Figure11:…whichisatouchhigherthantheIBESconsensus

18

220

17

215

16

210

15

205

14

200

195

13

190

12

185

11

2022EPSgrowth,IBESconsensus,%

180

10

2022EPSIBESconsensus,$,rhs

175

9

170

Feb-20

May-20

Aug-20

Nov-20

Feb-21

May-21

Source:Refinitiv,CreditSuisseestimates Source:Refinitiv,CreditSuisseresearch

Fromasectorperspective,themajorsectorcontributorstoUS2022EPSgrowthareexpectedbyconsensustobeconsumerdiscretionary,tech,industrialsandenergy,withthosefoursectorsaccountingfor75%oftheconsensusEPSgrowthnextyear.

Figure12:Foursectors–consumerdiscretionary,tech,industrialsandenergy–aresettoaccountfor75%ofUSEPSgrowthnextyear,basedonconsensusexpectations

2021growth

2022growth

2021EPSgrowth

2022EPSgrowth

share

contribution

share

contribution

Energy

nm

28.9%

13.1%

4.9%

8.7%

0.9%

Materials

70.6%

-0.1%

5.4%

2.0%

0.0%

0.0%

Industrials

43.6%

19.5%

8.8%

3.3%

14.3%

1.5%

Consumerdiscretionary

67.3%

30.5%

11.5%

4.3%

22.0%

2.3%

Consumerstaples

7.9%

7.5%

1.7%

0.6%

4.4%

0.5%

Healthcare

19.6%

6.9%

10.3%

3.8%

11.0%

1.2%

Financials

47.2%

-0.2%

22.1%

8.2%

-0.3%

0.0%

Tech

30.1%

11.4%

19.1%

7.1%

23.8%

2.5%

Communications

27.0%

13.6%

8.2%

3.0%

13.3%

1.4%

Utilities

-2.6%

10.3%

-0.3%

-0.1%

2.8%

0.3%

USmarket

37.07%

10.69%

100.0%

37.1%

100.0%

10.7%

Source:Refinitiv,CreditSuisseresearch

Thequestionthenbecomes–wherecouldthisconsensusbewrong?2022issettobeanunusualyear,justas2021was,withsomeunusualtrendslikelytonormalise,andexceptionalpolicysupportlikelytobewithdrawn.Thatcreatesaheighteneddegreeofuncertaintyaround

GlobalEquityStrategy

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26July2021

nextyear’sEPSgrowthoutlook.Below,westresstestsomeofthekeymovingparts,focusingonrevenue,marginsandtax.

Part2:Therevenueoutlook:ifanything,consensusistoocautious

Althougharound42%ofUSsalescomefromabroad(accordingtoS&P,onthebasisof2018data),thereisnonethelessareasonablyrobustrelationshipbetweenrevenuegrowthandthepaceofnominalGDPgrowth.Verysimplistically,Figure13suggestsabetaofrevenuegrowthtoGDPgrowthofaround2,soevenfairlymodestchangestoGDPgrowthexpectationscanhavemeaningfulimpactsonrevenuegrowthestimates,andgivenoperationalgearing,smallbeatsinrevenuegrowthcanhaveameaningfulimpactonEPS.InQ1,forexample,revenuesbeatestimatesby4.1%,whileEPSbeatby21.6%.

Thefirsttakeawayhereisthat,ifanything,revenueestimatesfornextyearcouldproveatouchconservativegivenconsensusexpectationsfornominalGDPgrowth.WewouldexpectconsensusnominalGDPof6%tobeconsistentwithrevenuegrowthofc10%.Or,putdifferently,currentconsensusrevenueestimatesappearconsistentwithameaningfuldeclineinconsensusnominalUSGDPgrowthdownto3.5%.

Figure13:SalesconsensusexpectationsseemalittlebelowtheirusualrelationshipwithnominalGDPgrowth

20

US12mfwdsales,yoy%chg

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21and22EPSgrowthforecast

USnominalGDPgrowth,rhs

9

15

GDPgrowthforecast

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-3

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2002

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Source:Refinitiv,CreditSuisse

AretheriskstoGDPgrowthnextyeartotheupsideordownside?

Thefirstobservationtomakebeforecomingtothisquestionisthat,inlinewiththeobservationsabovepertainingtouncertaintynextyear,thereisafairlywidedisparitybetweenUSGDPgrowthforecastsfornextyear.TheBloombergconsensusrangesfromalowof2.1%toahighof6%,whilethemedianof4.1%compareswiththeFederalReserve’sforecastofjust3.3%,whichhasbeensteadilyfallingbehindconsensusasFigure14highlights.TheBankofCanada’sforecastforUSGDPgrowthnextyearis5.1%(onanannualaveragebasis).

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Figure14:Consensusfor2022realGDPgrowthintheUShasbeenmovinghigherevenastheFedhavelefttheirforecastunchanged

4.3

Bloombergconsensus2022GDPgrowthestimate

4.1

FOMC2022GDPgrowthestimate

3.9

3.7

3.5

3.3

3.1

2.9

2.7

2.5

Jul-20

Sep-20

Nov-20

Jan-21

Mar-21

May-21

Source:Refinitiv,TheBloombergProfessionalService,CreditSuisseresearch

WethinkUSGDPgrowthcanbeaboveconsensusin2022forthefollowingreasons:

Continuingsupplyconstraintsarelikelytobetemporary.

GDPgrowthforecastsfor2021arestartingtobetrimmedasaresultofaweaknessofsupply.Aswehavenotedelsewhere,whetherlabour,semiconductorsorplastics,therehasbeenalackofthesupplynecessarytosatisfydemand,andultimatelygenerateeconomicactivity.2022shouldseesomeimprovement,buttheCEOofamajorchipproductionfirmshasalreadysuggestedthatthesupplyofsemiconductorswill“remaintight”goingintonextyear,thoughsupplywillbealittleeasierthanthisyear.Morerecently,ithasbeenthesupplyoflabourtotheservicessectorthathasrepresentedapinch-point.

Figure15:Despitethereopening,ISMservicesemploymentdatahasbeenweak,andbelow50,citingsupplyshortages

Source:Refinitiv,Markit,CreditSuisseresearch

Figure16:Thereiscleartightnessinthelabourmarket

7.0%

ECIwages&salaries,%changeY/Y

50

6.0%

NFIBsurvey:%offirmswith1ormorehardtofilljobs(3mma,rhs)

40

5.0%

4.0%

30

3.0%

20

2.0%

1.0%

10

0.0%

0

1993

1998

2004

2009

2015

2021

Source:Refinitiv,CreditSuisseresearch

However,weexpectmuchofthisshortagetobetemporary,reflectingadditionalunemploymentpayments(whichexpireon6September)andfearofgoingtowork.Thetruelevelof

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unemploymentisstillhigh(at8.4%onceweadjustforthosewhohavelefttheworkforce).Moreover,thereareclearsignsthatcorporatesarewillingtoraisewages,suchasthepercentageofcorporateswishingtoraiseworkers’compensation,suggestingfirmsarenotsimplywaitingforpandemic-relatedsupplydisruptiontoend.Last,therehasalsobeenarelativelypoorfitbetweenemploymentPMIsandemploymentgrowth.

Figure17:TherehasbeenarelativelypoorfitbetweenemploymentPMIsandemploymentgrowth

5.0%

58

4.0%

56

3.0%

2.0%

54

1.0%

52

0.0%

50

-1.0%

Non-farmpayrollsemploymentgrowth,3mann.

-2.0%

USCompositeemploymentPMIs,rhs

48

-3.0%

46

2010

2011

2012

2014

2015

2016

2018

2019

2021

Figure18:Alternativeunemploymentmeasuresremainhigh,suggestingsparecapacityinthelabourmarket

UScivilianunemploymentrate(notseasonallyadjusted)

Published

20

+discouraged

workers

15

+labourforce

declinesinceFeb

20

10

5

0

Feb-20

Apr-20

Jun-20

Aug-20

Oct-20

Dec-20

Feb-21

Apr-21

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

Aswehavenotedelsewhere,consensusexpectstheUSeconomytooperateabovecapacitytothegreatestextentseensincethe1970sby2023.Thequestionisnotsomuchwillthishappen,butratherwhetherithappengivencurrentsupplychains.Wethinkitcan.

Figure19:Onconsensusforecasts,theUSeconomyissettooperateabovecapacitytoagreaterextentthananythingseensincethe1970s

8

USoutputgap,%ofpotentialGDP

6

4

Bloombergconsensusforecasts

2

0

-2

-4

-6

-8

-10

-12

1949

1959

1969

1979

1989

1999

2009

2019

Figure20:Surveydatapointstoastronginclinationonthepartoffirmstoraisewages

ECIwages&salaries,%changeY/Y

28

4.5%

USNFIBSurvey:%offirmsplanningtoraiseworkercompensation,

rhs

4.0%

23

3.5%

18

3.0%

13

2.5%

8

2.0%

1.5%

3

1.0%

-2

1990

1993

1997

2001

2005

2009

2013

2017

2021

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

FiscaltighteninglikelytobelessthanforecastbytheIMF/OECD,andoffsetbyprivatesectordissaving.

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UsingIMFdata,fiscaltighteningnextyearcouldtakeasmuchas6ppoffUSGDPgrowthin2022,thoughwesuspectthatthiswillbecloserto4-5%.Reconciliationcanbeusedonceperfiscalyear(i.e.post1October),andwethinkanyso-called‘revenue’-neutralfiscalprogrammewouldhavethetaxhikesback-endloadedasthemultiplieronspendingincreasesismuchhigherthanthatoftaxingwealthyindividualsorcorporates.Eventhen,itrepresentsameaningfuldragonGDPgrowth.Offsettingthis,ourWashingtonpolicyteambelievesa$3.5-4trnpackagewilleventuallybepassedbyreconciliation,althoughitmaypassonlylatethisyear.

Figure21:Significantfiscaltighteningisapossibilityfor2022

*A

Fiscalimpulse:changeincyclicallyadjustedprimarybalance,%ofGDP,IMF

Year

US

Japan

UK

Eurozone

2020

5.7%

8.7%

8.7%

4.6%

2021

1.5%

-2.6%

-1.8%

-0.2%

2022

-5.9%

-4.8%

-4.1%

-2.1%

2023

-1.6%

-1.1%

-1.4%

-0.5%

positivefiscalimpulseislooseningoffiscalpolicy

Source:Refinitiv,CreditSuisseresearch

Fromasectoralbalancesperspective,theUSeconomyoverthepast12monthshasbeencharacterisedbysignificantdissavingbythepublicsectorandsignificantsavingbytheprivatesector.Lookingforward,wethinkthathouseholdsavingscanfallmorethangovernmentsavingsrise.

Figure22:Nextyearislikelytobecharacterisedbysignificantprivatesectordissavingandpublicsectorsaving

20

10

0

-10

-20

USsectoralbalances,%GDP

Publicsector

Overseas

Privatesector

-30

60

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66

69

72

75

78

81

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90

93

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99

02

05

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Source:Refinitiv,CreditSuisseresearch

Accruedhouseholdsavingsshouldmorethanoffsettheimpactoffiscaltightening.

Householdshaveaccruedsavingsabovetrendwortharound12%ofGDPand,asnotedabove,theextenttowhichthesearespentwillbeacriticaldriveroftheGDPoutcomefor2022.

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Figure23:Boosttodemandfromfiscal,realwealtheffectandexcesssavings

Sourceofpentupdemand

as%ofGDP

$800bntobedistributedviaAmericanRescuePlanwitha

2.7%

mutiplierof0.7

Excesssavings,$2.56trn

12.2%

Increaseinhouseholdequitywealth($10.2trn)andhousing

2%-3%

wealth($3.5trn),3-5%getspent

Source:Refinitiv,CreditSuisseresearch

Figure24:USdisposableincomehasrisensignificantlyasashareofGDP

100%

95%

USdisposable

90%

incomeas%ofGDP

85%

80%

75%

70%

65%

60%

1950

1957

1964

1971

1978

1985

1992

1999

2006

2013

2020

Source:Refinitiv,CreditSuisseresearch

BankofCanadamodelspointto25%oftheexcesssavingsheldbyCanadianhouseholdsbeingspent,oraround3%ofGDPintheUS.Wesuspectthatthenumberwillbehigherbecausewebelievethekeydriversofsavingsare:

Whetherpricesofgoods/servicesarelikelytoriseorfall.Theone-yearforwardUniversityofMichiganinflationexpectationsshowthatconsumersbelievepriceswillrise(andthusareinclinedtospendnow).

Wealtheffect:Therehasbeena$14trnpositivewealtheffectsincethestartof2020(one-thirdviathehousingmarketandtwo-thirdsviatheequitymarket).TheGreenspanruleofthumbassumesthat3-5%oftheincreaseinhouseholdwealthisspent.

Employmentprospects.Thelevelofvacanciesis9.5m,wellabovepre-pandemiclevels.

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Figure25:Consumerexpectationsofinflationarerising,implyingsavingsshouldbespentsoonerratherthanlater

5.0

UoMConsumerSentiment-Expectedinflation

4.5

4.0

3.5

3.0

2.5

Recession

2.0

Medianexpectedinflation-5yr

Medianexpectedinflation-1yr

1.5

1990

1995

2000

2005

2010

2015

2021

Figure26:Vacanciesareatmulti-decadehighs

10

USjobvacancies,inmillion

9

8

7

6

5

4

3

2

2000

2003

2006

2009

2012

2015

2018

2021

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

Thereforewethinkprobablythree-quartersofexcesssavingsareeventuallydrawndown,whichwouldbea9%boosttoGDP.Thequestioniswhenthelevelofsavingsisexpectedtofallbyconsensus.Ourprojectionisforrealincomegrowth(employment+realwagegrowth)tobec4%in2Hofthisyearand4%next,whichindicatesthatconsensusisassumingonlyaverysmalldeclineinaggregatesavings.

Ashighlightedabove,employmentgrowthisrobustandseasonallyunadjustedemploymentgrowthhasbeenevenstronger,whilewagegrowth(usingAHE)hasbeen6%inthepastthreemonths(thoughtthisnumberisverydistortedbymixeffects).

Figure27:Non-seasonallyadjustedemploymentgrowthhasbeenstrongerthanreporteddataintheUS

Non-farmpayrolls,employmentgrowth,3mann.

40.0%

30.0%

20.0%

10.0%

0.0%

-10.0%

-20.0%

-30.0%

-40.0%

-50.0%

-60.0%

Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21

SA Non-SA

Source:Refinitiv,CreditSuisseresearch

WeseethreeothersubstantialpositivesforUSGDP.

TherecentfallintheTIPSyieldstimulatesthehousingmarket.HousingasaproportionofGDPisatonlyaveragelevelsandconsiderablybelowthelevelsimpliedbyNAHBHousingMarketIndex.

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Figure28:Lowerrealratestendtoboosthousingactivity

50

USexistinghousingsales,YoY%change

-1.3

40

-0.8

TIPSyield,3mlead,rhs,inv

30

20

-0.3

10

0.2

0

0.7

-10

1.2

-20

-30

1.7

-40

2.2

2010

2012

2014

2016

2018

2021

Source:Refinitiv,CreditSuisseresearch

Wemightbeunderestimatinginvestmentgrowth.Capextosalesislow,andcorecapitalgoodsorderstypicallyleadinvestmentgrowth.Environmentalrequirements

areacceleratingcapex.

Figure29:Capextosalesremainsdepressed…

USCapextoSales Average

10.00%

9.00%

8.00%

7.00%

6.00%

5.00%

4.00%

1980 1985 1989 1994 1998 2003 2007 2012 2016 2021

Figure30:…andtheleadingcomponentsofcapexhavepickedup

30

25

15

20

5

10

-5

0

-15

-10

-25

-35

-20

UScorecapitalgoodsorders,y/y%

-45

USrealprivatefixedinvestment,y/y%chg,rhs

-30

2000

2003

2006

2009

2012

2015

2018

2021

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

ThebulkofChinatighteningisbehindus.

Chinahasaccountedfor36%oftheincreaseinglobalgrowthsince2010.TotalSocialFinancinghasnormalisedandspecialbondissuanceispickingup.On9July,theRequiredReserveRatiowascutbypolicymakersinChina.Thismakesusbelievethatthebulkofthetighteningphaseisbehindus.

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Figure31:Totalsocialfinancinggrowthhasslowed… Figure32:…ashasspecialbondissuanceinChina

15%

14%

13%

12%

11%

RMBloangrowth,PBOC

10%

TSFgrowth,PBOC

9%

Jan-16

Feb-17

Mar-18

Apr-19

May-20

Jun-21

4000

Newspecialbondissuance(RMBbn),cumulative

3500

3000

2500

2000

1500

2019

2020

1000

2021

500

0

Jan

FebMarAprMayJun

Jul

AugSepOctNovDec

Source:Refinitiv,CreditSuisseresearch Source:Refinitiv,CreditSuisseresearch

ThedeltavariantofCOVID-19.

ThereopeningisnowbehindusintheUS,withdataindicatingthatthisreturntonormal,whenitcomestoconsumeractivity,wasa2021event.Travellernumberspassingthroughairportsanddiningreservationsarebothessentiallybackto2019levels.However,forsomeeconomiesglobally,2022willbeayearofreopening,andareturntonormal.

Figure33:TravellervolumesintheUShavealmostcompletelynormalised,evenwithlimitedinternationaltravel

3000000

USTSAcheckpoint

2500000

numbers,totaltraveller

throughput

2000000

1500000

1000000

500000

Figure34:OpenTableactivityintheUShasalmostreturnedtonormallevels

20% OpenTable%changeinbookingsfrom2019baseline,7dma

0%

2020

-20%

2021

-40%

-60%

-80%

-100%

0

Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21

-120%

Jan Feb Apr May Jul Sep Oct Dec

Source:Refinitiv,CreditSuisseresearch Source:OpenTable,CreditSuisseresearch

TheDeltavariantofCOVID-19isestimatedbyPublicHealthEnglandtobe40-60%moretransmissiblethanthealreadyhighlycontagiousAlphavariant(previouslyknownastheKentvariant).Asaresult,COVID-19infectionsarerisingconsiderablyeveninhighlyvaccinatedcountries,suchastheUK,withclearsignsnowthatcasegrowthisacceleratingintheUS,wheretheCDCestimatesthatmorethanhalf(andrising)ofcasesarealreadytheDeltastrain.Theseconcerns,ofanothersubstantialCOVID-19wave,haveweighedheavilyonmarketsinrecentweeks.

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WedonotthinkCOVID-19willbeamajornegativesurprisefromhere.Byend-2021,thereissettobeenoughvaccinecapacitytovaccinate87%oftheglobalpopulation,accordingtotheCreditSuissePharmateam(notwithstandinglogisticalpressures,whichmeanitwilltakemuchlonger)andmanycountries(US,France,UKandGermany)havebeenabletovaccinate1%ofthepopulationadayoncetheystarttheirvaccinationprogrammes.Chinaisoncoursetovaccinate80%ofitspopulationbyyear-end,whileinIndia62%ofthepopulationalreadyhasantibodies(Reuters,20July).

Vaccinationhasbrokenthelinkbetweenratesofinfection,hospitalisationanddeath.IntheUK,notasinglefullyvaccinatedpersonunder50hasdied(accordingtoPHE).Theissueiswhattodowiththosewhoareunwillingtobevaccinated.Theyaccountforc14%oftheUSpopulationonrecentsurveys(witheightstateshavinggivensingledoseslessthan55%oftheiradultpopulation,accordingtothetrackerontheNewYorkTimeswebsite).

Wethinkthereisageneralviewthatitissociallyandpoliticallyunacceptabletohavelockdownstoprotectthosewhochoosenottobevaccinated.However,restrictingtheabilityofunvaccinatedpeopletogotorestaurantsortravelshouldprovideanincentiveforvaccination.EveninFrance,wherevaccinereticencewasrelativelyhigh,theproportionofthepopulationnotwantingavaccinehasfallento20%from40%,and61%nowsupportavaccinepassport(FT,17July).InItaly,only20%ofpeopleareagainstcompulsoryvaccination(FT,17July).

IftheUKisabletowalkthelinebetweenmaintainingeconomicactivityandpreventingthehealthcaresystemfrombeingoverwhelmed,thelessongloballywillbeapositiveone,implyinganoverreactionbymarketstothecurrentriseincases.

Figure35:TheUKprovidesclearevidenceoftheweakeninglinkbetweenCOVID-19casesandhospitalisations

Newhospitaladmissionswith7dlagagainstnewcases,ratio,UK

14%

12%

10%

8%

6%

4%

2%

0%

Sep-20

Nov-20

Dec-20

Jan-21

Mar-21

Apr-21

May-21

Jul-21

Source:Refinitiv,CreditSuisseresearch

Part3:Whataboutthemarginoutlook?

Sincethebeginningofthepandemic,earningsandmarginshavebeenmovingtogether,suggestingthatsofar,companieshavebeensuccessfulinpassingalongrawmaterialandlabourpricerisestoendconsumers.Thequestionfornextyeariswhetherthismarginresiliencecanpersist.

GlobalEquityStrategy

14

26July2021

Figure36:Marginshavesofarbeenexpandingalongwithrevenues

16.8

12mfwdsales,bn

USmarket

12.5%

16.3

12mfwdnetmargins,rhs

12.0%

15.8

11.5%

15.3

11.0%

14.8

10.5%

14.3

10.0%

13.8

9.5%

Jan-19

Jun-19

Nov-19

Apr-20

Sep-20