The speed of COVID-19 vaccination will be extremely crucial to have economies reopening, said Lakefield Partners Bruno Verstraete on Monday.

“I believe that asymmetry will continue and the asymmetry in economic growth will be determined by not just the cases rising, but also the speed of vaccination. I think the speed of vaccination will be extremely crucial to have economies reopening. We are a bit dependent on each other, but it is clear that this will determine the rate of inflation and the interest rates. There are a lot of side effects that will have ripple effects throughout the economy and financial markets that should not be underestimated at this stage,” he told CNBC-TV18.

There could be a geographical rotation, not only because of the US reopening but also because of the yield shifts in the US, Verstraete added.

“What we see now is not just sectoral rotation as we saw last year and the beginning of this year, but now we might go into a geographical rotation, not just because of the reopening, but also because of yield shifts in the US where it becomes more attractive to repatriate money again. That will have cash flow consequences on emerging markets and emerging market bonds that are repatriated, sold, and then have consequences again on the currencies and so on and so forth. So, I think now we are starting to see a geographical rotation based on that and I am not sure that that will stop anytime soon.”

He believes that one should not underestimate the defensive sector. He also believes that value might outperform growth in the short term.

“We are more top-down and in that respect, the ‘K’ recovery that we saw last year with some sectors at the bottom like energy are now on top. I think that rotation is something as an investor you need to really have a look at. So, sector-wise, I think one should not underestimate the defensive sector and the sectors that were taken down in the COVID pandemic which will very quickly recover once the economy is reopened. Banks, tourism, everything which is service-oriented might outperform the rest and that means as well that value at this stage might outperform growth in the short term.”

Watch the video for more

(Edited by : Ajay Vaishnav)