for financial professionals and institutional ......vantage point q4. 2020 a shot in the arm focus...

Vantage Point Q4. 2020

A shot in the armFocus still on Covid-19 vaccine overlayed with the US elections in November nibh euismod

tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo .

Vantage Point

Q1. 2021

A shot in the arm

FOR FINANCIAL PROFESSIONALS AND INSTITUTIONAL INVESTORS ONLY.

1

IntroductionWelcome to the last edition of Vantage Point this year. 2020 has been extraordinary of course and, in many ways, a year to forget. We all hope 2021 turns out to be more ‘normal’ but, sadly, we can’t be certain of that just yet.

Since we last published, there have been three important bits of news that have the potential to change next year’s outlook significantly.

First, in October and November we saw the disease re-emerge in Europe and latterly the United States. Official case numbers in both regions far exceed those we saw in the first wave during the Spring, and while some of that reflects massively greater testing, case positivity rates have risen too. Even allowing for a larger number of ‘false positives’ it seems clear infections have spread much more quickly than we had expected last time and a number of European countries have re-entered lockdown as a result – again something we felt was odds against in the previous edition of Vantage Point. Those lockdowns seem to be working in that case numbers seem to have peaked in Europe and are now falling sharply, but there will be an economic hit in Q4.

We suspect, for various reasons, the latest lockdowns won’t be as economically damaging as the first. The arithmetic is relatively straightforward: a month’s lockdown puts a third of quarterly GDP at risk; last time, a number of European countries shrank by around a fifth during lockdown; but this time we expect the measures to be roughly half as damaging as they were last time. The upshot is we start this forecast in Q4 from a significantly weaker position (in Europe at least). A third multiplied by a fifth multiplied by a half gives a 30th, or around 3% lower

than we expected to be. Of course, this is a very rough estimate and much depends on how long lockdowns last and how deeply they affect output and demand.

Elsewhere in the world things look a little brighter. The political bar to national lockdown remains high in the US, but the dramatic pickup in infections in a number of states may force State Governors down the European route at some point. The picture in Asia, Africa and South America looks significantly better however, with little sign of a resurgence and, in Asia at least, a quick return to pre-crisis levels of economic activity or above. Globally, case numbers seem to have plateaued again and may be starting to fall.

So that’s the bad news, but thankfully the second important bit of new information is much more hopeful. It appears we now have at least three vaccines that have proved to be remarkably effective in third-stage clinical trials. Both Pfizer and Moderna have reported 90%+ disease prevention rates and both have the capability to scale up manufacturing massively in relatively short order, while Oxford/Astra Zeneca report 70% effectiveness, but have a cheaper vaccine that can be distributed quickly and widely. No doubt there are more questions to be answered: these relatively small-sample trials are no guarantee of large-scale effectiveness and there are huge logistical challenges involved with rolling these vaccines out. But this seems to be the first unequivocally good news we’ve had in the fight against Covid and markets have responded joyfully. Better still, there is the promise of more to come: Russia’s Sputnik vaccine also reports a 90%+ prevention rate, though there is less transparency about the trials themselves and there are at least

1

IntroductionSince the last edition of Vantage Point, Covid-19 has wreaked both human and economic devastation on the world. At the time of writing, worldwide over 7.5 million people have contracted the disease and more than 400,000 have died from it. The response has been to lock down a number of economies in an attempt to reduce the transmission rate and reduce the so-called R number to below 1. The upshot has been the largest global economic contraction since economic records began: the world economy could have shrunk by around 10% in Q2, with huge knock-on effects onto employment and business profitability. The economic policy response has been impressive, as both central banks and governments have stepped in to prevent recession turning into depression. In this edition, we look back at what we’ve been through, look ahead to what might happen, assess the monetary and fiscal policy response, analyse the impact on markets and finally draw some broad investment conclusions in what is a highly uncertain and rapidly-evolving situation.

There is good news and bad news about what we’ve been through. The good news is that we are past the worst: the world economy probably troughed in late-April or early May. The bad news is that the worst was, economically speaking, very bad indeed. The epicentre of the disease moved from China in Q1 to Europe and the US in Q2. Some European economies – Italy, Spain, the UK – may well contract by a quarter to a third in the second quarter. The US economy is likely to have shrunk by upwards of 10% (quarterly change, not annualized), while unemployment has risen by over 30 million. Lockdown measures are beginning to ease now and we should see a pickup in activity shortly, but the extent and duration of the recovery remain hugely uncertain.

Looking ahead, we once again describe an alphabet soup of potential recovery scenarios from here. We describe a ‘V’, a ‘W/U’, an ‘L’, and an ‘I’ scenario. Crucially, we also define precisely what we mean by each scenario, differentiating them by the time it takes to recover the pre-crisis level of GDP. Given the scale of the decline to date, growth rates in the second half of the year are likely to be very high, even if economies are only in reality opening up slowly – so GDP levels are what matter here and we have recast our GDP fan charts into levels to make that point clear.

What kind of recovery we get depends fundamentally on the course of the disease from here. If a large number of economies can exit lockdown without seeing the frequency of cases spike beyond levels health systems can cope with, then a ‘V’-shaped recovery is on the cards, with global GDP returning to pre-crisis levels by the middle of 2021. However, if there is a large second wave, possibly in the Northern Hemisphere Fall/Autumn that necessitates a return to partial or full lockdown, then a ‘W/U’-shaped recovery becomes likely and we are unlikely to see pre-crisis levels of GDP restored until 2022. If, in either case, we see permanent demand and capacity destruction, a prolonged, slow or ‘L’-shaped recovery, becomes likely. That scenario could also trigger another bout of financial market instability, especially if a wave of bankruptcies and defaults causes parts of the credit market to collapse. Finally, our ‘I’ scenario refers to ‘inflation’; it is a variant of the ‘V’, in which a stronger-than-expected recovery, coupled with some reduction in supply capacity, causes inflationary pressure to rise in 2021 and forces central banks to reconsider their ultra-easy stance much sooner than markets currently expect.

Quarterly Outlook Q1.2021

2

a half dozen vaccine candidates expected to report similar levels of efficacy within the next couple of months. If they are as effective as they say they are and the rollout goes smoothly, it’s realistic to think much of the world will have reached herd immunity by the middle of 2021.

The outlook for 2021 depends crucially on which of these bits of good and bad news dominates. As usual with Vantage Point, we map out a set of plausible scenarios, attach probabilities to them and construct forecasts that are a probability distribution, and these two developments are crucial differentiators. There is also a time dimension here: the second wave may well dominate outcomes in the short run, since it will take time to discover whether the vaccines are truly effective and can be rolled out quickly. Consequently, all our scenarios feature an ‘air pocket’ in the US and Europe during Q4 and, to some extent, Q1 next year – growth slows and stock markets may well be volatile in that period. After that however, diverging assumptions about the vaccine and the course of the disease distinguish the scenarios.

Once again we have two scenarios that are positive and two less so. And, despite the short-term, disease-led downturn, our fan charts end up looking a little more optimistic growth-wise than they did last time. This is partly because we have raised the probability of our upside scenarios to a combined 70% – a sign of our confidence that a vaccine will fundamentally change our behavior during 2021. But also because the upside scenarios themselves are a bit stronger than they were – partly thanks to the enduring recovery in Asia, but also because 2021 Q2 and Q3 could deliver some very positive looking growth numbers. We think the world economy remains on course to recover pre-crisis levels of economic activity by the middle of the year, though full recovery in Europe has been pushed back slightly. Economic risks remain skewed to the downside and the left-tails of our GDP growth distributions are fatter than they were – a small chance of a very nasty outcome indeed.

The third bit of news is of course the outcome of the US elections. President-Elect Biden will probably have to govern with a Republican Senate and Democrat House (pending the results of Senatorial run-offs in Georgia). Markets initially took the news of divided government well – it appeared to rule out some of the more controversial policies a ‘blue wave’ might have brought with it. But attention now turns to the likelihood, scope and size of a fiscal stimulus bill. Negotiations are starting but, at the moment, our best guess is the US will see a package in the order of $1 trillion – significant and supportive, but smaller than expectations pre-election. And ironically, the smoother the roll-out of the vaccine, the smaller the package the Senate would likely approve.

We are sometimes accused of having too short a time horizon, fixating on the next year to 18 months, whereas good investment decisions focus on longer-term themes. Readers shouldn’t mistake the lack of discussion for a lack of interest. Whatever happens to the path of GDP, Covid-19 will reshape our economy significantly, changing the way we live, work and play fundamentally. Vantage Point chooses to focus on the factors likely to move markets immediately and our scenarios are parables that can be spun out into longer-term analyses – and we will do so in other publications. For now though, we hope you enjoy this edition and get to enjoy a more prosperous, safer and happier 2021.

SHAMIK DHAR CHIEF ECONOMIST

3

Contents

EXECUTIVE SUMMARY ••

SECTION 1. ECONOMICS ••

1A) SCENARIOS ••

1B) FORECASTS ••

SECTION 2. CAPITAL MARKETS ••

2A) WHAT IS PRICED IN ••

2B) MARKET SENTIMENT ••

SECTION 3. INVESTMENT CONCLUSIONS ••


4

Executive SummaryWHAT WE THINK – ECONOMIC SCENARIOS

Good Recovery

The single most likely scenario sees a successful global rollout of the various vaccines which prove effective. The upshot is that much of the world reaches herd immunity levels during 2021 and it proves possible to start fully re-opening economies from Q2 onwards. The US and European economies have to negotiate an ‘air pocket’ between now and then, so could see very weak growth in Q4 and possibly Q1, but economic activity picks up very strongly in Q2 and Q3 of 2021. Asia is ahead of the pack of course, but the revival in global trade boosts China’s prospects too. Pent-up demand comes through – household and corporate savings and cash balances are high in a number of countries, while leverage is low. Sectors most affected by lockdowns, such as face-to-face services, benefit disproportionately. Both fiscal and monetary policy remain highly accommodative – inflation remains well contained because the recovery in demand lags that of supply. The recovery in private demand and fall in net saving allows fiscal deficits to correct naturally to some extent. The outlook is positive for risk assets: rapid, non-inflationary recovery, coupled with low interest rates should support a relatively broad stock market rally, even at high valuations. And even though some of this has been discounted already, the resolution of uncertainty towards the middle of the year provides another boost. The dollar weakens in this scenario, as the prospect of financial crisis recedes further, supporting ‘carry trades’ in general.

Inflation Surprise

Confidence in the economy and employment prospects, strong consumer and business sentiment, paired with a continued policy support, lead to a fast drawdown in excess savings accumulated in 2020 and quick fall in the household saving rate from very elevated to average levels. Businesses respond gradually, but steadily, by increasing investment, accelerating the increase in aggregate demand further. The recovery is stronger than expected – a number of economies not only overtake the pre-crisis level of GDP in 2021 but start to approach the pre-crisis trend level. Unlike the modal scenario however, supply remains somewhat impaired in the sectors of the economy most affected by Covid-19, at least in the short term. Lower short-run supply capacity reduces the speed at which actual output can grow without generating price pressures. In addition, firms take advantage of rapid growth in demand to rebuild profit margins by raising prices. Given its new policy strategy, the Fed does not tighten until late 2022, a long time after inflation reaches the 2% inflation target. US real interest rates reach historically low levels. Equities and real assets perform strongly. The US dollar falls initially, driven lower by expectations of low US real interest rates relative to other advanced economies. By the end of the forecast period, the Fed however starts raising rates, limiting the upside for risky assets and providing a floor to the dollar.

50% 20%

5

PROBABILITY*

SCENARIO

‘Bad Recovery’, Stormy Seas

In this scenario, the vaccines turn out to be less effective and more difficult to roll out than in the first two scenarios. Social distancing and even lockdowns return to some economies. Just as important however is the impact of widespread disappointment on individual behavior and confidence. This disappointment undermines confidence– boosting unemployment and bankruptcies as precautionary saving by households and firms stays high. Fiscal policy, constrained by concerns about debt, cannot replace weak private demand, while additional rounds of QE prove less marginally impactful. Neither the US nor European economies return to pre-crisis levels of economic activity until mid-2022 at the earliest. Weak demand means inflation falls further, more countries are forced to consider negative rates and markets begin to focus on long-run debt sustainability. A flight to safety resumes – the dollar and US treasuries rise as carry trades reverse sharply. Global financial conditions tighten. Central banks are unable to offset this entirely and equities sell-off significantly.

Hysteresis, Permanent Damage

The pandemic causes long-lasting economic damage through a combination of fundamental forces and self-fulfilling pessimism. Economists call this ‘hysteresis’. It arises because there are permanent job losses and long-term unemployment rises, depleting the skills base. At the same time, corporate bankruptcies cause investment to fall further, reducing the growth in the capital stock. On top of these fundamentals however, the pandemic permanently changes the way people and firms form beliefs about the future, even if the vaccine proves successful at suppressing the disease. To many, the world is much more unpredictable than they previously thought and they fear there are more nasty tail risk events ahead. This heightened pessimism and weaker ‘animal spirits’ prove self-fulfilling and aggregate final demand stays weak. Both physical and psychological scarring turn a temporary disease shock into a permanent hit to the level (and possibly growth rate) of economic activity. A number of major economies never return to the pre-pandemic trend. Weak activity and high unemployment accelerate forces that were already in place pre-pandemic, such as de-globalization. This fragile, highly uncertain world leads to higher volatility in markets and higher risk premiums. A generalized and prolonged flight from risk ensues, affecting all risk assets.

15% 15%


6

● The market continues to price in no policy rate hikes for several years. Interest rate implied volatility fell further and in some countries, for some maturities, reached its lowest level on record. There is a much lower level of uncertainty towards the forward path compared to Q3. The outlook for policy rates is one area where market expectations differ from our own. While similar to the market – our most likely outcome for policy rates is one where they remain at their effective lower bound until 2022 – we also assign a non-trivial probability (20%) that rates will be above 1% by end 2021. Instead, the range of outcomes priced in by options on interest rate futures remains in a much tighter range by that date.

● Overall, global government bond yields remained in a range in Q4, continuing to struggle to maintain consistent upward momentum from their current low levels. The US was somewhat an outlier, with longer term yields increasing by around 20bp to just under 1%. The US yield curve is now significantly steeper than that of other advanced economy peers. The moves in US long term nominal interest are fully explained by a rise in the term premium (i.e. the compensation that investors require for holding a long-term bond) rather than the component related to expectations for short term interest rates, which remains close to historically low levels. This move is consistent with the market pricing in a reduction in uncertainty on future short term interest rates – due to a fall in risks to longer term growth and inflation and, potentially, a further decrease in uncertainty around the Fed’s reaction function. The market continues to expect short term nominal interest to reach a peak of 2% in the long run, higher than what suggested by headline forward nominal rates and broadly consistent with our own projections.

● Equity gains in Q4 were largely driven by improved earnings expectations as valuations were flat. Areas that previously suffered the most outperformed after Pfizer’s vaccine announcement: cyclical vs growth, value vs momentum, and international vs US. Based on this rotation in performance across sectors, factors, and regions, markets appeared to be pricing in a cyclical growth recovery but the breadth and duration are less clear. The combination of earnings expectations and valuation multiples at a sector level, appears to suggest that a recovery in fundamentals is being priced in for some sectors (e.g. industrials, consumer discretionary, materials), while others are expected to continue to struggle going forward (energy and to a lesser extent real estate).

● Moves higher in real and inflation components of nominal interest rates are also consistent with an improvement in the longer term economic outlook in the US. In the euro area, longer term forward real rates were flat, while inflation fell a little instead, pointing to an overall more challenging outlook priced in by the market. Across other advanced economies, real interest rates remain far below start-2020 levels, while inflation compensation has recovered a significant portion of the fall seen since the start of the year. In term of levels, market based measures of inflation expectations are either close to, or below, the bottom of the range consistent with target. Therefore, signs of weakness in traded inflation should be monitored closely from investors, as they are likely to lead to an increase in monetary stimulus by central banks.

● The steady decline in the US dollar continues to be the main story in currency markets in the past months (-2.2% QTD as of 11/30). Interest rate differentials moved somewhat in favor of the US dollar (i.e. US rates increasing relative to interest rates in other currencies), which should lead to an appreciation of the US currency, all else equal. However, other forces are driving exchange rates at the moment, such as a relative fall in the risk premia associated with foreign currency vs the US dollar, on the back of the improvement in broader risk sentiment and global growth expectations. Indeed, over the period, the US dollar depreciated the most against cyclical currencies such as the Norwegian Krone, the Australian dollar and the Canadian dollar.

● Credit continued its strong performance in Q4. US high yield spreads declined more than in Q3, while the fall in investment grade was the same. As a result, the difference between high-yield and investment-grade spreads compressed further, although it remains higher than it was at the start of the year (particularly in EMs). A decomposition of corporate bond credit spreads into expected default risk and a risk premium component suggests that expected default risk remains higher than at the start of the year, while risk premia almost fully retraced the earlier increase. This move is consistent with the continued improvement in growth expectations and risk sentiment, and central banks’ asset purchases (including of corporate bonds) leading to a strong compression of risk premia across markets.

Short Rates

Equities

Inflation

FX

Credit

Fixed Income

%CAPITAL MARKET PRICING – WHAT THE MARKETS THINK

7

INVESTMENT CONCLUSIONS

Equities ● The greater chance of a good recovery, thanks to more

positive news on vaccine and therapeutic candidates, means we are optimistic about equities, which is reflected in a positive score on our new heat map.

● We expect cyclical sectors such as industrials, materials and consumer-driven names to lead and for the tech-heavy NASDAQ to take a supporting role, but still contribute to overall returns. Additionally, the traditional recovery pattern suggests strong performance for small- and mid-cap equities over coming quarters.

● Following the pause in Europe that will likely linger into Q1, we expect a strong rebound in economic activity and market action. The positive relative score for international developed equities reflects an increased likelihood for the group to narrow the valuation gap with the US and offer strong return opportunities in Q2-Q4 of 2021.

● Within EM, we continue to favor Asian equity markets with close ties to the more resilient sectors of the Mainland Chinese economy and those that remain relative EM safe havens due to strong virus containment abilities and targeted policy (e.g., Korea, Taiwan, Philippines, and Indonesia).

Fixed Income ● The negative sentiment on US and Developed

Sovereign bonds reflects current pricing and the rising probability of a good recovery, but we maintain that the low-to-negative stock/bond correlation can still be beneficial in either of the two downside scenarios. Overall, we see more risk than opportunity in the sovereign space and an underweight position may be warranted.

● Our scores on Global Investment Grade and High Yield Credit reflect the limited upside in price return potential given the spread tightening that has already occurred. However, there is still attractive income potential in both spaces, particularly high yield, for investors seeking that objective.

● A weaker USD view makes us slightly favor EM local currency to hard currency debt. Within local currency debt, we favor those countries where nominal/real rates are at attractive levels (such as Indonesia, China, and Mexico). Within hard currency debt, valuations offer more opportunities in the sovereign space vs corporates.

US Dollar/Foreign Exchange ● We expect to see the weakening bias of the USD index

against major FX crosses to continue further into 2021. Selective exposure to EM FX is advised: Latam FX such as the Colombian Peso, Mexican Peso, and Brazilian Real will likely benefit from a weaker USD and improving trade volumes. The Chinese Yuan will likely remain strong, benefitting Asian FX such as the Korean Won, Malaysian Ringgit and Taiwanese Dollar which have high beta to the Yuan.

Alternatives ● Our inflation scenario maintains its 20% probability

and presents an opportunity for real assets such as real estate, precious metals, natural resources and commodities. Additionally, some alternative assets can provide uncorrelated exposure in an environment where high quality fixed income may not offer adequate preservation power.

EconomicsSECTION 1


Major Economies’ Household Saving Rates (%)

0

5

10

15

20

25

30

35

1991 1995 1999 2003 2007 2012 2016 2020

Hou

seho

ld S

avin

gs R

ates

(%)

France Germany US UK

CHART 1: ELEVATED SAVINGS LEVELS HIGHLIGHT THE AMOUNT OF PENT-UP UP DEMAND TO SUPPORT A CONTINUED RECOVERY.

9

Scenario #1: Good Recovery

The ‘good recovery’ scenario remains our single-most-likely or modal outcome. In this world, while the European and US economies travel through an ‘air pocket’ in Q4 and Q1, the promise of the vaccine comes good later in the year and economies can open up again to a large extent as the vaccine rollout delivers something close to ‘herd immunity’. As a result, economic growth is strong during Q2 and Q3 in particular, strong enough to take a number of developed economies back to pre-crisis levels of economic activity or above. Of course, a number of Asian countries, most notably China, are there already and the synchronous nature of the rising global tide of growth lifts all boats further.

One of the main reasons the recovery is strong is because there is a large amount of pent-up private demand. Household and corporate saving rates have risen sharply in a number of the

most affected economies – to around [15%] in the US for instance, compared with a historic average of around [7%]. Even if households remain a bit more cautious than in the past and choose to run a saving rate of around 10% in future, that’s still around 5% of personal income (around 3% of GDP) ready to be added to the quarterly flow of aggregate demand. On top of that, US households have accumulated around ($1½ trillion) in excess cash balances over the past few quarters – and it’s hard to believe a large part of that won’t be run down in the event of a successful vaccine rollout. What’s true of the US household sector is true of households in a number of other countries, and we saw in Q3 2020 what happens when people who have been forced to save because they haven’t been able to spend their money on locked-down goods and services do when restrictions are lifted. Third-quarter growth rates were double-digit in a

Data as of September 2020. Source: Bloomberg.

50%

SECTION 1A

Economic Scenarios

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product.

(Probability)


10

number of the worst-affected economies – significantly stronger than most economists had been predicting earlier this year.

Moreover, in this scenario both monetary and fiscal policy remain hugely supportive throughout 2021. Globally, fiscal and monetary measures amount to around 15% of world GDP and their effects are likely to felt with a lag of between 2 and 8 quarters.

The scenario is relatively optimistic about jobs and inflation too. Because aggregate demand returns close to pre-crisis levels relatively quickly, so does aggregate employment – though it may lag a little. Undoubtedly, the composition of demand and employment is very different, but the scenario is relatively positive about the ability of major economies to create jobs in

expanding sectors to replace those lost in contracting ones, especially at lower skill levels. Inflation remains contained in all the major economies throughout the forecast horizon, largely because there is significant spare capacity and because inflation expectations remain anchored.

Essentially, this scenario embodies the view that economies can bounce back from truly ‘exogenous’ shocks more quickly than recessions that result from underlying imbalances in the economy (such as excessive debt build up, or inflation). In many ways, 2020 saw the most unusual recession, in that household incomes rose and household finances improved even as the recession struck. This scenario reflects the view that if there is not a lot wrong with the underlying economy to start with, then it can recover strongly once the worst of the shock has passed.

Charts are provided for illustrative purposes and are not indicative of the past or future performance of any BNY Mellon product. Past performance is no guarantee of future results.

-100

100

300

500

700

900

1100

11

12

13

14

15

16

17

18

19

20

2000 2005 2010 2015 2020

US

Hou

seho

ld D

ebt

to A

sset

s R

atio

US Household Debt to Assets Ratio (LS) US Savings Deposits (q/q chg., $ billion, RS)

CHART 2: LOW CONSUMER LEVERAGE AND ELEVATED CASH HOLDINGS1 COULD ENABLE A FASTER THAN EXPECTED RECOVERY.

1 Includes money market deposits. Data as of September 30 for savings and June 30 for leverage. Source: Bloomberg.

US Household Financial Strength

11

Decomposition of Changes in US Personal Outlays

-800

-700

-600

-500

-400

-300

-200

-100

0

100

Dec

-19

Jan-

20

Feb-

20

Mar

-20

Apr

-20

May

-20

Jun-

20

Jul-

20

Aug

-20

Sep

-20

Oct

-20

Other (interest payments+transfer payments) Services Goods Personal outlays

CHART 3: THE FALL IN SERVICES HAS CONTRIBUTED TO NEARLY ALL OF THE YTD DECLINE IN CONSUMPTION. GOING FORWARD, IT IS POSSIBLE THAT SERVICES CONSUMPTION WILL INCREASE SHARPLY IGNITING A BROADER PICK UP IN PRICES.

Data as of November 25, 2020. Source: US Bureau of Economic Analysis.


Scenario #2 – Inflation Surprise

In this scenario, the economic recovery is even stronger than in the ‘good’ recovery scenario.

Private consumption is ignited by a fall in the household saving rate to longer-run average levels and a drawdown in the stock of excess savings accumulated in 2020. The recent re-introduction of Covid-19 related restrictions in many countries leads to a ‘paradox’ of falling consumption in the short term, but a further build-up in the stock of excess savings to be used for consumption further out. The decline in demand for restricted activities, the main force that led to the collapse in prices in 2020, moves into reverse as fear of infection is swiftly reduced by the quick distribution of the vaccine (in particular to those older-age households responsible for the highest drop in consumption in 2020).

Initially, the recovery in business investment is likely to happen more slowly than that of consumer spending due to uncertainty about the future level and pattern of demand. However, as businesses start seeing strong demand in their sector as persistent, business investment strengthens more than expected, accelerating the increase in aggregate demand further.

Government policies continue to sustain the recovery, with public spending contributing to growth over the forecast period

directly through a mix of public consumption and investment, and indirectly by supporting broader confidence in the labor market and the economy. In this scenario, policymakers do not tighten fiscal policy prematurely, as occurred in the aftermath of the global financial crisis in many advanced economies.

In aggregate, firms across the economy take advantage of the rapid growth in demand and start rebuilding profit margins by raising prices. In this scenario it is possible that supply remains somewhat impaired in the sectors of the economy most affected by Covid-19. A number of sectors failed to meaningfully normalize even as restrictions were eased during the summer, e.g. air travel, entertainment, hospitality. And the re-introduction of restrictions as a response to new Covid-19 waves provides a further hit to activity in these sectors. As a result, some firms in these sectors may shrink or go out of business. While there are reasons to remain optimistic about the outlook for supply in the medium term (e.g. labor markets across major economies showed a capacity to adjust quickly to the shock so far; productivity may increase if the composition of production shifts to higher-productivity activity on average), this would likely lower the supply capacity of the economy in the short run, reducing the speed at which actual output can grow without generating price pressures.

20%(Probability)


12

In the near term there may well be volatility in inflation data, with shifts in the composition of demand and supply driving relative price changes. But pretty soon inflation data starts to surprise consistently to the upside, mutating into a strong, broad pickup in inflationary pressures. Given more inflation-tolerant central banks, particularly in the US where the new monetary policy strategy formally allows inflation to rise above target for a period, inflation runs above target for some time before monetary policy is tightened in late 2022. US real interest rates reach historically low levels. Equities and real assets perform strongly. But the US dollar falls, driven lower by expectations of low US real interest rates relative to other advanced economies. By the end of the forecast period, the Fed however starts raising rates, limiting the upside for risky assets and providing a floor to the dollar.

Changes in Price and Quantity for Goods vs. Services (QoQ, Q3 2020)

-20

-15

-10

-5

0

5

10

15

20

25

30

-50 0 50 100 150 200

Quantity change (%)

Pri

ce c

hang

e (%

)

Services Goods

CHART 4: SERVICES PRICES REMAIN LESS RESPONSIVE TO CHANGES IN QUANTITIES GIVEN THE DEPRESSED LEVEL OF DEMAND IN THE SECTOR.

Lines represent lines of best fit in a simple regression specified as change in price = constant + change in quantity. Data as of November 25, 2020. Source: US Bureau of Economic Analysis.

US Trailing 12-month High Yield Default Rates (%)

0

3

6

9

12

15

18

Dec 98 Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14 Dec 16 Dec 18 Dec 20

9/30/20, 5.6%

Trai

ling

12-m

onth

Hig

h Yi

eld

Def

ault

Rat

e (%

)

CHART 5: THE UPTURN IN HIGH YIELD DEFAULTS WOULD ACCELERATE IN THIS SCENARIO.

13

Scenario #3: Bad Recovery

In this scenario, optimism surrounding vaccine deployment is short-lived. Its effectiveness and distribution fail to meet expectations and the return to economic normality is delayed further. Whether because of unexpected side effects, sample results that do not translate to the general population, lax social distancing, slow and insufficient vaccine uptake by people, and/or inability to produce and deliver enough doses in a timely manner, Covid-19 cases remain higher than planned.

Having just escaped the winter flu reason in the Northern Hemisphere, the course of disease stays disruptive to economic activity and social mobility. Elevated cases and isolated “waves” lead to more but targeted lockdowns throughout most of 2021 in different areas around the world. Case resurgence and inability to limit the spread lead to a pick-up in hospitalizations and deaths. Health services stay under pressure throughout the year.

Given overreliance on an effective vaccine for the 2021 outlook, sentiment quickly relapses into pessimism. Heightened uncertainty and concerns over near-term economic prospects become a self-fulfilling prophecy triggering another downturn. Still feeling the effects from 2020, risk-averse behavior from both consumers and businesses constrain aggregate demand. Despite higher stimulus induced cash levels and the ability to

draw down on still elevated savings, consumers hold back on spending as negative news coverage keeps consumers cautious. The services sector, after already feeling the brunt of the slowdown in 2020, is hit the hardest again. Business investment stays weak adding even more uncertainty to the outlook.

Because of both weak aggregate demand and challenging labor market dynamics making it difficult for furloughed and laid off workers to quickly find work in other industries, unemployment picks up. Having remained contained throughout 2020, the compounded impact from additional restrictions to activity leads to a sharp rise in bankruptcies, lowering the capital stock further. Monetary policymakers implement additional QE yet its weakened impact fails to stem deteriorating sentiment and activity

Global financial conditions tighten sharply and central banks inject liquidity but are unable to stem the panic as quickly and effectively as they did in March 2020. Risk premia increase since there is little central banks can do to counter the rise in uncertainty and worsening outlook. A generalized flight from risk assets ensues. Equity markets correct, particularly those in high-beta and growth sectors, pushing the cost of capital higher. Reduced wealth in the corporate sector drives risk premia on lending higher. Credit markets weaken especially in high yield

15%

Data as of November 2020. Source: Strategas and Fitch Ratings.


(Probability)


14

leading to a possible credit crunch. Demand for USD and cash rises while peripheral European bonds and EM carry trades are caught in the middle of the risk-off move.

Global growth falls and bottoms in the first half of the year. In the short run, Europe is hit the hardest followed by the US. China is hit by weak foreign demand but suffers the least. Longer term, the US is able to recover to pre-Covid levels several years out while Europe remains below for the full forecast period. The S&P 500 falls sharply towards the lows in March 2020 and takes at least two years to recover.

Financial Conditions

bpbp

Libor-OIS (bp, LS) Euribor-OIS (bp, RS) 3-mth US Nonfinancial AA CP-OIS (bp, LS)

-10

-5

0

5

10

15

20

25

30

35

-50

0

50

100

150

200

250

Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20

CHART 6: EASY FINANCIAL CONDITIONS COULD QUICKLY REVERT BACK TO CONDITIONS SEEN IN MARCH.

Data as of November 27, 2020. OIS: overnight indexed swap. AA refers to credit rating. CP: commercial paper. Source: Bloomberg.

15


Scenario #4: Hysteresis – Permanent Damage 15%

(Probability)

S&P 500 in Our Four Scenarios

1500

2000

2500

3000

3500

4000

4500

5000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42019 2020 2021 2022 2023

Good recovery Inflation Bad recovery Hysteresis

CHART 7: THE HIT TO THE S&P 500 IS PROLONGED UNDER THE HYSTERESIS SCENARIO.

Forecasts begin in Q4 2020 and were calculated as of November 24, 2020. Source: BNY Mellon GEIA and Fathom Consulting.

In this scenario, the Covid19 pandemic leads to long-lasting economic damage in a number of major economies. Even after effective vaccines and the elimination of the virus, there is permanent output loss and economic scarring1. Economists describe the process by which temporary shocks have permanent effects as ‘hysteresis’. In this scenario, it comes about for two reasons: fundamental and psychological. First, even though vaccines prove successful in reducing disease risk, some industries never recover and the jobs lost there are not replaced by others in expanding sectors. Similarly, firms reduce investment in the hardest-hit sectors, and this is not matched by higher investment elsewhere. The upshot is that long-run unemployment rises, the skills base is depleted and the growth of the capital stock falls, bringing the path of output down with it.

However, perhaps more important is the psychological scarring. Covid 19, a tail event, forces many firms and people to update their expectations of future events (i.e. their beliefs) in a major way: the world is more unpredictable than they ever thought and people raise their perceived probability of future negative tail risk events. Precautionary saving rises, animal

spirits weaken further and heightened pessimism becomes a self-fulfilling prophecy. In other words, a temporary disease shock becomes a permanent/self-fulfilling belief shock that lowers the economy’s trend growth path forever.

Aggregate demand remains weak as households maintain high saving rates. Likewise, businesses make future decisions with the risk of another pandemic in mind. Weak demand and high unemployment also accelerate forces that were already in place pre-pandemic: countries increasingly focus on returning economic activity within borders. Businesses and investors fear that the implication of this highly uncertain world will be severe. This results in a steady fall in global growth and productivity over the next decade, lowering the return on capital, much of which is anticipated by forward-looking asset markets in the next few years. As investors expect lower returns on investment, they reduce investment spending. To some extent, this is a self-fulfilling fear that cannot be offset by easy monetary policy, thanks in part to the diminishing marginal effectiveness of QE at the zero bound. Hence, output takes a permanent hit and remains below potential (3-5% lower than pre-crisis GDP trend) while unemployment remains high.

1 i.e. the economy gets stuck in a bad equilibrium permanently even after a ‘temporary and exogenous shock.’ This scenario is most likely to happen if policy interventions are inadequate to shift expectations and move the economy back to the ‘good equilibrium.’

The response of the real natural rate to pandemics and wars

Per

cen

t

Wars Pandemics

Years

2

0 10 20 30 40

1

0

-3

-2

-2

CHART 8: FOLLOWING A PANDEMIC, THE NATURAL RATE OF INTEREST TAKES A PERSISTENT HIT THAT UNWINDS AFTER FOUR DECADES.

The real natural rate of interest is the level of real returns on safe assets which equilibrates an economy’s savings supply and investment demand—while keeping prices stable. Figure displays the estimated response of the natural rate to pandemics and wars, 1 to 40 years from the end of the war/pandemic (the shaded regions provide a 1 and 2 standard error confidence band). Source: Òscar J., Sanjay R., Alan M. Taylor, June 2020, “The Longer-run Economic Consequences of Pandemics.”


16

The following corresponds to all charts in section 1A. The information in our scenarios contains projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from

that shown here. The information in this presentation is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.

Hysteresis in labor markets may ensue from disruptions to supply chains, elevated uncertainty, higher frictions due to skill mismatches, lower aggregate supply, and higher production costs. The rise in unemployment is largely structural. Inflationary pressures build because the fall in supply is greater than the fall in demand, and central banks choose to accommodate. This then feeds through to inflation expectations, and ultimately to inflation, but later and for longer than in our inflation scenario.

Despite higher inflation, the persistent increase in perceived risks depresses bond yields. Higher debt and weaker demand lead to a deterioration of balance sheets and global financial

conditions tighten. This fragile, highly uncertain world leads to higher volatility in markets and increased risk premiums. A generalized and prolonged flight from risk ensues, affecting all risk assets. This could trigger another global flight to safety and a sharp dollar appreciation, hitting some emerging markets hard – notably those with large dollar funding exposures.

17

This has been the year of the COVID-19 pandemic. Dominating our lives, it has affected both the way we work, and what we can do in our spare time. It has been impossible to discuss either the macro outlook, or the prospects for asset prices, without the virus taking center stage. And that remains the case today. As the Northern Hemisphere moved through autumn and towards winter, it became clear that a second wave of COVID-19 was spreading rapidly through many of those countries most badly affected in the spring. Fears that health services would be overwhelmed, causing a spike in excess mortality, led many European governments to reimpose nationwide lockdowns. We had judged this development unlikely at the time of our previous Vantage Point. It did not feature in our single most likely ‘Good Recovery’ scenario, which had assumed uninterrupted progress towards pre-COVID levels of economy activity. And yet, as 2020 draws to a close, disheartening news about a resurgence of the virus has coincided with promising early evidence from late-stage vaccine trials, which suggests that a number of candidates may be more than 90% effective in preventing disease. There is now a realistic prospect that,

within the first few months of next year, the most vulnerable populations in many of the world’s largest economies will be protected from the devastating effects of COVID-19, removing the need for social distancing and allowing almost all forms of economic activity to return.

Rising cases globally and renewed lockdowns, especially in Europe, combined with the strong likelihood that many of the world’s most vulnerable will soon have access to extremely effective vaccines have had a material impact on our forecast, both in the near term and further out. Our revised ‘Good Recovery’ scenario, which now has an increased weight of 50%, sees global economic activity grind almost to a halt through Q4 and into Q1, as renewed lockdowns take effect in Europe. But beyond Q1, the picture changes dramatically. We see several quarters of rapid economic growth, particularly in Europe, but also in the US, as social distancing comes to an end, and activity returns to its pre-COVID trend. Our ‘Inflation Scenario’, which has an unchanged weight of 20%, is similar, but here the recovery gets underway sooner. Sensing a brighter, post-

80

85

90

95

100

105

110

115

120

125

130

2019 2020 2021 2022 2023Mean‘Most likely’ mode

0

10

20

30

40

50

60

70

80

90

Dec 20 Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23

%

Vantage Point 2020 Q4 Vantage Point 2021 Q1

CHART 9: US GDP INDEX, 2019 Q4 = 100. CHART 10: PROB. US REACHES PRE-COVID GDP LEVELS, %.



The solid line shows the good recovery upside scenario mode and the dashed line is the mean or probability-weighted average forecast across all four scenarios. The darker bands towards the center of the fan chart show the more likely outcomes, while the lighter bands show progressively less likely outcomes covering 90% of the forecast distribution. The width of the fan chart shows the level of uncertainty and when the bands below the central forecast are wider than those above shows the balance of risks lies to the downside.

SECTION 1B

Economic Forecasts



18



vaccine future, those households that have built up substantial savings pots through the pandemic begin to spend more freely immediately, before supply has responded in full, and this puts upward pressure on inflation. In our ‘Bad Recovery’ scenario, vaccines fail to live up to their promise, either because of as yet unknown side effects, or because they cannot be made quickly enough. There is a sudden fall in household and business confidence, leading to widespread corporate failures and rising unemployment. The weight we attach to this scenario has halved since the previous Vantage Point, from 30% to 15%. In our ‘Hysteresis scenario, which captures the remaining 15% of the distribution, the threat to economic recovery comes not from COVID-19, but from permanent ‘scarring’ both physical and psychological, which gives rise to lower growth and higher inflation for a period of time.

Our judgment about the range of possible outcomes for US GDP is summarized in chart 9 ( see prior page). Our single most likely scenario sees US output broadly flat over the year end, with

perhaps a modest contraction in Q4 giving way to a modest expansion in Q1, before several quarters of robust economic growth. Compared with our previous Vantage Point, the picture is a little weaker in the near term, but significantly stronger further out, reflecting our growing confidence that social distancing will no longer be necessary in the US, and in most major economies, from the middle of next year (chart 10). Although risks to our single most likely scenario remain tilted slightly to the downside, they are more balanced than before. Encouraging news about the efficacy of a number of vaccine candidates means the odds of a sharp, virus-induced contraction in activity through next year are half what they were.

The downside risks to inflation have faded along with the downside risks to activity, giving our inflation fan charts a marked upward slope. We judge that the odds of outright deflation through next year are now less than 1-in-20 not just in the US (chart 13), but as chart 14 shows, in the euro area too. By the end of next year, risks to inflation in the euro area are

Mean‘Most likely’ mode

80

85

90

95

100

105

110

115

120

125

130

2019 2020 2021 2022 2023

CHART 11: EURO AREA GDP – INDEX, 2019 Q4 = 100.



80

85

90

95

100

105

110

115

120

125

130

2019 2020 2021 2022 2023

CHART 12: CHINA GDP – INDEX, 2019 Q4 = 100.


19

%


-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2019 2020 2021 2022

%


-1.0

0.0

1.0

2.0

3.0

4.0

5.0

2019 2020 2021 2022

CHART 13: US CPI – FOUR-QUARTER PERCENTAGE CHANGE. CHART 14: EURO AREA CPI – FOUR-QUARTER PERCENTAGE CHANGE.



moderately to the upside, with close to an evens chance of a sustained period of above-target inflation in the single currency bloc, something that has not been seen for a decade.

By the end of 2021, it is more likely than not that US activity will have returned to its pre-COVID trend, and US inflation will be above 2.0%. Nevertheless, with the FOMC targeting an inflation rate of 2.0% on average over time, rather than period by period, it will not be in a hurry to respond, particularly if inflation expectations remain well anchored. We see just a 30% chance that the cuts in the federal funds rate implemented earlier this year as the pandemic took hold have been reversed by the end of our forecast horizon in 2023 Q4. Our fan chart for ten-year US Treasury yields (chart 15) is gently upward sloping, with yields tending to rise in both our ‘Good Recovery’ and our

‘Inflation’ scenarios, which have a combined weight of 70%. The odds that US yields turn negative towards the middle of next year have fallen to around 15%.

Just as the prospect of one or more successful vaccines lessens the chances of a sharp contraction in economic activity, so it removes some of the downside risk to equities. Looking across our four scenarios, there is a good chance of further sizeable gains in the S&P500 through the first half of next year. We see around a two thirds chance that the index has moved above 4,000 by the end of next year. Equally, the odds of a bear market in US equities have lessened from around 1-in-4 at the time of our previous Vantage Point, to around 1-in-10 today (chart 18).




20



Inde

x


2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

2018 2019 2020 2021 2022 2023

CHART 17: S&P 500 – INDEX.


%


-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2018 2019 2020 2021 2022 2023

CHART 15: US TEN-YEAR GOVERNMENT BOND YIELDS %.


0

5

10

15

20

25

30

Dec 20 Jun 21 Dec 21 Jun 22 Dec 22 Jun 23 Dec 23

%

Vantage Point 2020 Q4 Vantage Point 2021 Q1

CHART 18: PROB. S&P 500 FALLS 20% OR MORE, %.


-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2018 2019 2020 2021 2022 2023

%


CHART 16: US FEDERAL FUNDS RATE %.


21



2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

2018 2019 2020 2021 2022 2023

Inde

x


CHART 19: EURO STOXX 50 – INDEX.


95

97

99

101

103

105

107

109

111

113

115

2019 2020 2021 2022 2023

Inde

x


CHART 21: USD AGAINST MAJOR CURRENCIES. INDEX, JANUARY 2006 = 100.


0

100

200

300

400

500

600

700

800

2020 2021 2022 2023

Bas

is p

oint

s

Mean

CHART 20: US HY-IG SPREAD – BASIS POINTS.

HY: high yield. IG: investment grade. Forecasts begin in Q4 2020 and were calculated as of November 24, 2020. Source: BNY Mellon GEIA and Fathom Consulting.

im.bnymellon.com

IMPORTANT INFORMATIONFor Financial Professionals and Institutional Investors onlyThis material should not be considered as investment advice or a recommendation of any investment manager or account arrangement. Any statements and opinions expressed are those of the authors stated, as at the date of publication, are subject to change as economic and market conditions dictate, and do not necessarily represent the views of BNY Mellon or any of its affiliates. The information has been provided as a general market commentary only and does not constitute legal, tax, accounting, other professional counsel or investment advice, is not predictive of future performance and should not be construed as an offer to sell or a solicitation to buy any security or make an offer where otherwise unlawful.The information has been provided without taking into account the investment objective, financial situation or needs of any particular person. Please consult a legal, tax or financial professional in order to determine whether an investment product or service is appropriate for a particular situation. BNY Mellon and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This is not investment research or a research recommendation for regulatory purposes as it does not constitute substantive research or analysis. To the extent that these materials contain statements about future performance, such statements are forward looking and are subject to a number of risks and uncertainties. Information and opinions presented have been obtained or derived from sources which BNY Mellon believed to be reliable, but BNY Mellon makes no representation to its accuracy and completeness. BNY Mellon accepts no liability for loss arising from use of this material.Past performance is not a guidance to future performance.BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top US wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. All information contained herein is proprietary and is protected under copyright law.ISSUING ENTITIES This information is approved for Global distribution, excluding the United States, and is issued in the following jurisdictions by the named local entities or divisions: Europe, Middle East, Africa and Latin America: BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. • Switzerland: Issued by BNY Mellon Investments Switzerland GmbH, Talacker 29, CH-8001 Zürich, Switzerland. Authorised and regulated by the FINMA. • Dubai, United Arab Emirates: Dubai branch of The Bank of New York Mellon, which is regulated by the Dubai Financial Services Authority. This material is intended for Professional Clients only and no other person should act upon it. • Singapore: BNY Mellon Investment Management Singapore Pte. Limited Co. Reg. 201230427E. Regulated by the Monetary Authority of Singapore. • Hong Kong: BNY Mellon Investment Management Hong Kong Limited. Regulated by the Hong Kong Securities and Futures Commission. • Japan: BNY Mellon Asset Management Japan Limited. BNY Mellon Asset Management Japan Limited is a Financial Instruments Business Operator with license no 406 (Kinsho) at the Commissioner of Kanto Local Finance Bureau and is a Member of the Investment Trusts Association, Japan and Japan Investment Advisers Association and Type II Financial Instruments Firms Association. • Australia: BNY Mellon Investment Management Australia Ltd (ABN 56 102 482 815, AFS License No. 227865). Authorized and regulated by the Australian Securities & Investments Commission. • Brazil: this document is issued by ARX Investimentos Ltda., Av. Borges de Medeiros, 633, 4th floor, Rio de Janeiro, RJ, Brazil, CEP 22430-041. Authorized and regulated by the Brazilian Securities and Exchange Commission (CVM). • Canada: BNY Mellon Asset Management Canada Ltd. is registered in all provinces and territories of Canada as a Portfolio Manager and Exempt Market Dealer, and as a Commodity Trading Manager and Investment Fund Manager in Ontario.BNY MELLON COMPANY INFORMATION BNY Mellon Investment Management is an investment management organization and wealth manager, encompassing BNY Mellon • affiliated investment management firms, wealth management organization and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally. • Mellon Investments Corporation (Mellon) is a registered investment adviser and a subsidiary of BNY Mellon. • Insight Investments • Investment advisory services in North America are provided through two different investment advisers registered with the Securities and Exchange Commission (SEC) using the brand Insight Investment: Insight North America LLC (INA) and Insight Investment International Limited (IIIL). The North American investment advisers are associated with other global investment managers that also (individually and collectively) use the corporate brand Insight. Insight is a subsidiary of BNY Mellon. • Newton Investment Management • Newton and/or the Newton Investment Management brand refers to the following group of affiliated companies: Newton Investment Management Limited, Newton Investment Management (North America) Limited (NIMNA Ltd) and Newton Investment Management (North America) LLC (NIMNA LLC). NIMNA LLC personnel are supervised persons of NIMNA Ltd and NIMNA LLC does not provide investment advice, all of which is conducted by NIMNA Ltd. NIMNA LLC and NIMNA Ltd are the only Newton companies authorized to offer services in the U.S. In the UK, NIMNA Ltd is authorized and regulated by the Financial Conduct Authority in the conduct of investment business and is a wholly owned subsidiary of BNY Mellon. • Alcentra • BNY Mellon holds 100% of the parent holding company of BNY Alcentra Group Holdings Inc., which is comprised of the following affiliated companies: Alcentra Ltd. and Alcentra NY, LLC. • ARX is the brand used to describe the Brazilian investment capabilities of BNY Mellon ARX Investimentos Ltda. ARX is a subsidiary of BNY Mellon. • Dreyfus Cash Investment Strategies (Dreyfus CIS) is a division of BNY Mellon Investment Adviser, Inc., a subsidiary of BNY Mellon. • Walter Scott & Partners Limited (Walter Scott) is an investment management firm authorized and regulated by the Financial Conduct Authority, and a subsidiary of BNY Mellon. • Siguler Guff • BNY Mellon owns a 20% interest in Siguler Guff & Company, LP and certain related entities (including Siguler Guff Advisers LLC). No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. All information contained herein is proprietary and is protected under copyright law.NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE |IS-159001-2020-12-10 GU-111 – 10 December 2021 T9359 12/20

for financial professionals and institutional ......vantage point q4. 2020 a shot in the arm focus...

Documents