Our positioning: Change in outlook

While the financial markets have settled down again somewhat after the turmoil, the outlook has changed. We see US government bonds and the Japanese yen as good investment opportunities.

There are growing concerns over a slowdown in the US economy.

The financial markets held their breath over significant price volatility last month. The value of higher-risk investments fell at the end of July, while secure asset classes made gains. Although financial market conditions have now settled down again somewhat, the outlook has changed.

Carry trades in big trouble

Beleaguered carry trades in Japanese yen were at the center of last month’s turbulent events. These inexpensive loans in yen to purchase other investments come under pressure if the Japanese currency appreciates strongly or the value of the investments made, such as tech stock like NVIDIA, falls sharply. In such situations, the loans taken out in yen often have to be repaid by quickly offloading the investments purchased. This unwinding of the carry trades is caused by appreciation of the Japanese currency and losses on the investments made. This pattern of events has been very evident over recent weeks. 

Tech stocks under pressure

In addition to the unwinding of the carry trades, disappointing quarterly reports by major tech companies benefiting from the AI boom, such as Microsoft, also contributed to the market turmoil. Until early July, it seemed as though the profit expectations of these companies would continue rising endlessly. However, the latest reports put a dampener on these expectations. It’s becoming increasingly clear that investment in artificial intelligence still has to pay off. We expressed scepticism over the high expectations in May and adjusted our positioning in the tech-heavy US equity market in favour of value stocks. In addition to significant price corrections to tech stocks after the quarterly reports, the latest development in the competition law investigations, with the judgement on the Google case in the USA, also confirmed our positioning. This development may strengthen the competition, making it harder to generate high profit levels favoured by monopoly positions. Even after the recent recovery on the financial markets, returning to the previous trend may prove difficult in view of these prospects. That’s why we continue to favour value stocks.

Growing fears of recession in the USA

Growing concerns over a slowdown in the US economy proved challenging for the financial markets last month. This realization also appears to be gradually setting in on the financial markets. Equity prices fell again worldwide after the publication of weaker US labour market data at the end of July. In contrast to the rest of the current year so far, bad economic news was also deemed a negative development for the financial markets in July. This situation did not come as a surprise to us. We’ve been warning of the risk of an economic slowdown in the USA for some time and have adopted appropriate defensive positioning. With the heightened risk of recession in the USA, lower capital market interest rates are now much more likely, prompting us to neutralize our bond allocation by purchasing US government bonds.

Japanese yen has potential to appreciate

During the recent turmoil related to the unwinding of carry trades, the Japanese yen made strong gains. However, unlike other asset classes, it has failed to recover since the turmoil. In our view, the Japanese currency is unlikely to return to its previous level of weakness. Instead, the yen looks set to make further gains, as it is still significantly undervalued and has shown recent upward momentum. For this reason, we recommend purchasing Japanese yen.

Performance of asset classes

Currencies1 month in CHFYTD in CHF1 month in LC YTD in LC
Currencies
EUR
1 month in CHF
−2.3%
YTD Year-to-date: since the start of the year in CHF

2.6%

1 month in LC Local currency
−2.3%
YTD Year-to-date: since the start of the year in LC Local currency
2.6%
Currencies
USD
1 month in CHF
−3.3%
YTD Year-to-date: since the start of the year in CHF
2.8%
1 month in LC Local currency
−3.3%
YTD Year-to-date: since the start of the year in LC Local currency
2.8%
Currencies
JPY
1 month in CHF
3.7%
YTD Year-to-date: since the start of the year in CHF
−1.6%
1 month in LC Local currency
3.7%
YTD Year-to-date: since the start of the year in LC Local currency
−1.6%

Equities1 month in CHFYTD in CHF
1 month in LC YTD in LC
Equities
Switzerland
1 month in CHF
−2.2%
YTD Year-to-date: since the start of the year in CHF
10.2%
1 month in LC Local currency

−2.2%

YTD Year-to-date: since the start of the year in LC Local currency
10.2%
Equities
World
1 month in CHF
−6.0%
YTD Year-to-date: since the start of the year in CHF
15.4%
1 month in LC Local currency
−2.8%
YTD Year-to-date: since the start of the year in LC Local currency
12.2%
Equities
USA
1 month in CHF
−6.0%
YTD Year-to-date: since the start of the year in CHF
17.9%
1 month in LC Local currency
−2.8%
YTD Year-to-date: since the start of the year in LC Local currency
14.6%
Equities
Eurozone
1 month in CHF
−7.8%
YTD Year-to-date: since the start of the year in CHF
8.2%
1 month in LC Local currency
−5.6%
YTD Year-to-date: since the start of the year in LC Local currency
5.5%
Equities
United Kingdom
1 month in CHF
−3.6%
YTD Year-to-date: since the start of the year in CHF
13.9%
1 month in LC Local currency
0.9%
YTD Year-to-date: since the start of the year in LC Local currency
10.0%
Equities
Japan
1 month in CHF
−8.1%
YTD Year-to-date: since the start of the year in CHF
9.3%
1 month in LC Local currency
−11.3%
YTD Year-to-date: since the start of the year in LC Local currency
11.0%
Equities
Emerging markets
1 month in CHF
−7.1%
YTD Year-to-date: since the start of the year in CHF
10.2%
1 month in LC Local currency
−4.0%
YTD Year-to-date: since the start of the year in LC Local currency
7.1%

Bonds1 month in CHFYTD in CHF
1 month in LC YTD in LC
Bonds
Switzerland
1 month in CHF
1.8%
YTD Year-to-date: since the start of the year in CHF
3.5%
1 month in LC Local currency

1.8%

YTD Year-to-date: since the start of the year in LC Local currency
3.5%
Bonds
World
1 month in CHF
−0.3%
YTD Year-to-date: since the start of the year in CHF
4.5%
1 month in LC Local currency
3.1%
YTD Year-to-date: since the start of the year in LC Local currency
1.6%
Bonds
Emerging markets
1 month in CHF
−1.7%
YTD Year-to-date: since the start of the year in CHF
8.5%
1 month in LC Local currency
1.6%
YTD Year-to-date: since the start of the year in LC Local currency
5.5%

Alternative investments1 month in CHFYTD in CHF
1 month in LC YTD in LC
Alternative investments
Swiss real estate
1 month in CHF
−0.2%
YTD Year-to-date: since the start of the year in CHF
6.1%
1 month in LC Local currency

−0.2%

YTD Year-to-date: since the start of the year in LC Local currency
6.1%
Alternative investments
Gold
1 month in CHF
−1.3%
YTD Year-to-date: since the start of the year in CHF
21.5%
1 month in LC Local currency
2.1%
YTD Year-to-date: since the start of the year in LC Local currency
18.2%

Our positioning – Swiss focus

LiquidityTAA old TAA new
Positioning
Liquidity
CHF
TAA old Tactical asset allocation: short- to medium-term positioning
1%
TAA new Tactical asset allocation: short- to medium-term positioning
1%
Positioning Positioning compared to long-term investment strategy
Overweighted
Liquidity
Money market CHF
TAA old Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Liquidity
Money market JPY
TAA old Tactical asset allocation: short- to medium-term positioning
0.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Liquidity
Total
TAA old Tactical asset allocation: short- to medium-term positioning
7.0%
TAA new Tactical asset allocation: short- to medium-term positioning
5.0%
Positioning Positioning compared to long-term investment strategy
Neutral

Equities
TAA old TAA new
Positioning
Equities
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
25.0%
TAA new Tactical asset allocation: short- to medium-term positioning
25.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Equities
USA
TAA old Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new Tactical asset allocation: short- to medium-term positioning
6.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Equities
Eurozone
TAA old Tactical asset allocation: short- to medium-term positioning
3.0%
TAA new Tactical asset allocation: short- to medium-term positioning
3.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Equities
United Kingdom
TAA old Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Equities
Japan
TAA old Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Equities
Emerging markets
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
10.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Equities
World value
TAA old Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Equities
Total
TAA old Tactical asset allocation: short- to medium-term positioning
50.0%
TAA new Tactical asset allocation: short- to medium-term positioning
50.0%
Positioning Positioning compared to long-term investment strategy
Neutral

Fixed incomeTAA old TAA new
Positioning
Fixed income
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
15.0%
TAA new Tactical asset allocation: short- to medium-term positioning
15.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Fixed income
World
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
10.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Fixed income
Emerging markets
TAA old Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new Tactical asset allocation: short- to medium-term positioning
6.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Fixed income
US government bonds 
TAA old Tactical asset allocation: short- to medium-term positioning
0.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Fixed income
Total
TAA old Tactical asset allocation: short- to medium-term positioning
31.0%
TAA new Tactical asset allocation: short- to medium-term positioning
33.0%
Positioning Positioning compared to long-term investment strategy
Neutral

Alternative investmentsTAA old TAA new
Positioning
Alternative investments
Swiss real estate
TAA old Tactical asset allocation: short- to medium-term positioning
7.0%
TAA new Tactical asset allocation: short- to medium-term positioning
7.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Alternative investments
Gold
TAA old Tactical asset allocation: short- to medium-term positioning
5.0%
TAA new Tactical asset allocation: short- to medium-term positioning
5.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Alternative investments
Total
TAA old Tactical asset allocation: short- to medium-term positioning
12.0%
TAA new Tactical asset allocation: short- to medium-term positioning
12.0%
Positioning Positioning compared to long-term investment strategy
Neutral
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