Our positioning: Caution despite recovery

Since the end of March, there has been an exceptionally strong equity rally on the financial markets, mainly driven by price gains made by tech companies in the AI sector. The global tech sector has risen by more than 25 percent since the start of the year, reaching its peak in early June. However, the rally suffered its first setback at the beginning of June. Although several AI companies presented strong quarterly results, they failed to fully live up to investors’ expectations, which are now very high. It meant several stocks came under pressure despite posting strong numbers.

Growing concerns over a more restrictive monetary policy and associated higher interest rates also weighed on the markets. The surprisingly robust US labour market report and rising inflation rates are likely to prevent central banks from easing monetary policy quickly. Accordingly, there’s growing concern that interest rates could rise again.

Easing tensions in the Middle East lead to a recovery

However, these stress factors took a back seat in mid-June. The prospect of a framework agreement in the Middle East and hopes that the Strait of Hormuz would reopen eased tensions on the markets. Oil prices fell sharply within a short space of time, with US crude oil trading at around 80 US dollars per barrel. At the same time, long-term interest rates fell, while equity markets made further gains. Whether this development is sustainable remains to be seen.

Tactical positioning pays off

The results of our tactical positioning are clearer: two of our tactical convictions were particularly successful. Global value stocks outperformed the US equity market, and emerging market equities excluding China also performed well. Together, both positionings made a positive contribution to performance totalling more than 1 percent, prompting us to take profits. In light of the already significant price rises and the ongoing risks, we still consider caution to be warranted.

A cautious approach is advised

The high valuations in the AI sector already reflect very optimistic expectations, so simply meeting expectations is no longer sufficient for further price gains. Instead, companies need to significantly exceed them. At the same time, the more broadly based rise in inflation suggests that central banks could maintain their restrictive stance for longer. Disappointments in earnings growth or another rise in interest rates could soon lead to price corrections in this environment.

Swiss real estate funds and gold remain attractive

We continue to rate exchange-listed Swiss real estate funds positively. The rejection of the “No to a Switzerland of 10 million” initiative should help to ensure that demand for residential and commercial properties in Switzerland remains high, while supply growth is limited. At the same time, the distribution yield of over 2 percent appears attractive in light of a policy rate level of 0 percent. We’re also holding firm on our overweight position in gold. The precious metal is a hedge against geopolitical risks, and also provides protection against any further rise in inflation.

Performance of asset classes

Our positioning – Swiss focus