John Waldron Interviews American and United Airlines Leaders...Asia-Pacific's Growth Outlook...ESG's Staying Power

[Goldman Sachs]( [BRIEFINGS] December 3, 2020 Talks at GS: American and United Airlines Leaders on the Future of Airline Travel Above (L to R): Doug Parker of American Airlines, John Waldron of Goldman Sachs and Oscar Munoz of United Airlines Even with enhanced health and safety policies to help protect passengers from the coronavirus, the major airlines face a common challenge in attracting air travelers and one that extends far beyond the airport: “You have to have someone to travel to. You have to have a client on the other side willing to accept you. And that's going to take its time. It's going to take a vaccine,” United Airlines Executive Chairman [Oscar Munoz]( tells Goldman Sachs President and COO John Waldron in a recent episode of Talks at GS. American Airlines CEO [Doug Parker]( echoed that sentiment in a separate conversation. “People are willing to fly,” he says. “We’re seeing that in leisure destinations certainly, but mostly what people need in order to fly is a reason to travel and right now, for the most part, that’s to go to the beach, to go to the mountains,” he says, “We need it [to be] to go to work.” Looking ahead, United Airlines' Munoz says “we don't see a full return of our pre-COVID levels of business probably into 2022 and possibly later...So we'll be a smaller airline at the time. But we'll be efficient. We'll be investing in a lot of technology and a lot of new innovations. And then hopefully continue to make you feel safe when you travel.” [Watch videos]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Talks%20at%20GS%3A%20American%20and%20United%20Airlines%20Leaders%20on%20the%20Future%20of%20Airline%20Travel&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Ftalks-at-gs%2Findex.html) 2021 Growth Outlook for the Asia-Pacific Region Goldman Sachs Research expects strong growth out of Asia-Pacific next year as the region continues its recovery from the coronavirus. “We think the region could grow more than 7% in 2021,” says Andrew Tilton, chief Asia-Pacific economist for Goldman Sachs Research in a recent Exchanges at Goldman Sachs podcast. “We’re optimistic about the world [economy] also—we think the world can grow about 6%—but especially optimistic about Asia-Pacific.” There are three key drivers behind the outlook, Tilton notes. “First, the region has very good control of the virus in many parts, particularly parts of northeast Asia and Australia/New Zealand,” he says. “Second, as in other places, we think we'll see widespread vaccinations in significant parts of the region next year. Third, the biggest economy, China, has already recovered quite a lot from the coronavirus shock. It's already up on a year-over-year basis and showing strong momentum into the end of the year.” [Listen to podcast]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Growth%20Outlook%20for%20the%20Asia-Pacific%20Region%202021&body=https%3A%2F%2Fyoutu.be%2FHfSAj_auABY) The Daily Check-In With Goldman Sachs Given the surge in popularity of ESG investing in recent years, one question on investors’ minds has been whether sustainable investing has staying power. This year settled that question, says [John Goldstein]( head of Goldman Sachs’ Sustainable Finance Group in a recent episode of The Daily Check-In. In 2020, ESG “got a stress test—and arguably a stress test it needed—and it passed,” Goldstein notes, pointing to the $120 billion of net inflows into ESG equity funds this year even as non-ESG funds saw outflows over the same period. Goldstein also points to 2020 as the year that cemented the importance of the “S” in ESG. “We find ourselves almost a year later having worked to navigate a health crisis and an employment crisis—very visible manifestations of continued racial inequity in the US—and this continued focus as the world has really become, frankly, much more aware of the importance of the inclusive growth side of the work.” In another episode of The Daily Check-In, [Jerry Lee]( of Goldman Sachs’ Investment Banking Division describes strides in the global biotech and pharmaceuticals industry this year, fueled in part by its response to the pandemic. “When you think about the actual COVID impact on the market, the COVID-related stocks have added more than $50 billion of market cap just this year. And why? When you actually think about some of the recent results—Pfizer, BioNTech, Moderna, Lilly, Regeneron—they've devoted a great deal of capital, a great deal of capabilities and a great deal of their innovative, cutting-edge technologies to really solving the COVID crisis,” Lee says. Biopharma also represents an opportunity for cross-border innovation and cooperation between the U.S. and China, Lee says. “We've now even seen multiple deals, including multibillion-dollar deals between the U.S. and European and Chinese companies to really flesh out that collaboration across development and commercialization.” For more Daily Check-In videos, [subscribe to our channel]( on YouTube. [Watch videos]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=The%20Daily%20Check-In%20With%20Goldman%20Sachs&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fthe-daily-check-in%2Findex.html) Insights From Great Investors: Dennis Lynch of Morgan Stanley’s Counterpoint Global Above (L to R): Katie Koch of Goldman Sachs and Dennis Lynch of Morgan Stanley’s Counterpoint Global The volatility of the pandemic has rapidly changed the opportunity set for investors—and the challenge according to Dennis Lynch, who heads Morgan Stanley’s Counterpoint Global, is that some of these changes will be fundamental in nature. “It can lead to parts of the market being less attractive or certain kinds of business models being impaired," Lynch tells Goldman Sachs’ Katie Koch in an episode of Talks at GS Presents: Insights From Great Investors. Some of the trends the pandemic has pulled forward were expected, Lynch says, like the acceleration of e-commerce adoption. But “there are other cases where it wasn't as obvious…[such as] the intention for companies to move more quickly to digitizing their IT in order to enable remote computing.” The company's size may have also come into question, he adds. “In some cases you think…here's a company we really like long term, but they rely upon on small, medium businesses. And what's going to happen to those companies and their end markets?" But, Lynch adds, "greater adoption of their services sort of more than offset sort of that.” [Watch video]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Insights%20From%20Great%20Investors%3A%20Dennis%20Lynch%20of%20Morgan%20Stanley%E2%80%99s%20Counterpoint%20Global&body=https%3A%2F%2Fyoutu.be%2Fo-IyK78b_oE) Briefly…on Hedge Funds' Renaissance Year The hedge fund industry is poised to post one of its strongest years since the global financial crisis, according to Goldman Sachs’ Tony Pasquariello, global head of hedge fund coverage for the Global Markets Division. Below, he explains the drivers behind the performance and the outlook for 2021. Tony, how would you sum up the year for hedge funds? Tony Pasquariello: The hedge fund community has, on net, had a very strong year, a renaissance of sorts—arguably, it’s been the best year for many funds in at least a decade. Despite a relatively lean opportunity set from 2016 to 2018—when market volatility was exceptionally low—returns this year have been comparatively very strong. A number of strategies have performed well, including the directional macro funds, which were well-positioned on the long side of fixed income in the first quarter, then pivoted to a pro-risk stance in equities and credit once markets started to rally into the spring and summer. Other cohorts that have performed well include multi-strategy, platform-like funds and many of the traditional fundamental long-short funds, especially those most levered to growth stocks. How are hedge fund investors positioned going into the end of the year? Tony Pasquariello: Hedge funds have taken on a pro-risk stance, particularly as the year has progressed. According to Goldman Sachs’ prime brokerage data, portfolio net and gross exposures are both elevated on a historical basis, with a tilt toward U.S. large cap tech stocks, health care and media stocks. On the back of positive vaccine developments, we have also seen managers moving more chips into the cyclical or value buckets by adding U.S. industrials, basic materials and consumer discretionary stocks. What key strategies will hedge funds likely focus on in 2021? Tony Pasquariello: At a high level, there’s an expectation that 2021 will be another good year for the industry against a positive macro backdrop which, according to our Goldman Sachs Research colleagues, includes an above consensus view of around 6% global GDP growth, another 20% rally in the S&P 500 and the start of structural bull market in commodities. That said, a lot of money has already been made in fixed income this year, and with central banks committed to anchoring rates at the zero bound, it’s going to be very difficult to replicate those returns in fixed income going forward. So we expect investors to turn to non-traditional strategies and managers to find returns outside of fixed income, specifically in equities, currencies and commodities. One could also expect that hedge funds will continue to add more private assets to their portfolios over the coming years. Finally, interest in ESG has continued, and even accelerated, during the pandemic, and we’re seeing the theme play a larger role in the asset management landscape, including hedge funds. [Read more Briefly Q&As]( SHARE: [twitter]( [facebook]( [LinkedIn]( [email](mailto:?subject=Briefly%E2%80%A6on%20Hedge%20Funds%20%E2%80%98Renaissance%E2%80%99%20Year&body=https%3A%2F%2Fwww.goldmansachs.com%2Finsights%2Fseries%2Fbriefly%2Findex.html) Goldman Sachs Media Highlights Bloomberg - December 2 [Goldman's Kostin Sees S&P 500 Rising to 4,300 by Year-End 2021]( (3:37) [Subscribe]( [Unsubscribe]( The data provided in this newsletter is for information purposes only and should not be construed as investment or tax advice nor as a recommendation to buy, sell, or hold any particular security. Goldman Sachs believes the data in this newsletter is accurate, but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Goldman Sachs has no obligation to provide any updates or changes to the data. No investment decisions should be made using this data. 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