Our positioning: Cautious positioning in an uncertain environment

Hopes for a quick resolution to the Middle East conflict are increasingly looking to be wishful thinking. The war has been ongoing for more than six weeks, and recent peace talks were terminated after only a short time without any results. This is hardly surprising, given the divergent positions of the parties involved in the conflict, but it highlights how difficult it remains to find a sustainable solution. The situation around the Strait of Hormuz, one of the most important routes for the global transport of oil, is particularly critical. The de facto blockade is becoming a key bargaining chip, with far-reaching consequences for the global economy.

Fragile recovery

Despite the ongoing uncertainty, the financial markets have recovered remarkably well recently. Driven mainly by recurring hopes of easing tensions, the major stock markets have clawed back much of their earlier losses. In Europe and Japan, the indices are now just 3 to 4 percent below the level of the end of February, only slightly below the level before the outbreak of the conflict. In the USA, the markets have almost returned to this level.

But this should not mask the fact that the recovery is fragile. The recovery is largely based on expectations of de-escalation in the near future, which has not yet been confirmed. The markets therefore remain vulnerable to further setbacks.

In addition, it is particularly evident in the USA that the current stabilization is less an expression of a new dynamic than, at best, a continuation of a sideways trend that has been ongoing for some time. The US stock markets have largely trended sideways since last autumn. Against this background, the recent recovery appears less robust than the short-term view suggests.

Risks remain high

Recent developments, however, indicate a further intensification of the conflict. The naval blockade announced by the US signals an escalation, adding to the ongoing uncertainty in the financial markets. As long as this important oil transport route remains disrupted, the risk of permanently higher energy prices is considerable. Accordingly, inflationary pressure is likely to remain high or even increase again.

At the same time, the already gloomy economic environment is deteriorating. Even before the outbreak of the conflict, there were growing signs of a slowdown in the US. Greater geopolitical uncertainty and rising prices are now placing an additional strain on both companies and consumers. This is clearly reflected in consumer confidence in the USA, which recently dropped to its lowest level since the survey began in 1953.

In light of this, we are maintaining our cautious approach. Equities remain underweighted overall, and we continue to view US equities in particular with caution. Instead, we are increasingly focusing on global investments, such as emerging market equities and value stocks.

Gold and tangible assets as an anchor of stability

To hedge against ongoing risks, we are also maintaining an overweighted position in gold. While higher interest rates and a stronger US dollar have created headwinds recently, the combination of geopolitical uncertainty and inflation risks continues to strengthen the case for the precious metal. We are also maintaining our overweighted position in exchange-listed Swiss real estate funds. Despite high valuations, the potential for a downturn appears limited in view of stable demand and persistently low interest rates. At the same time, distribution yields remain an attractive source of income.

Performance of asset classes

Our positioning – Swiss focus