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.
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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.
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
Currencies | 1 month in CHF | YTD in CHF | 1 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% |
Equities | 1 month in CHF | YTD 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% |
Bonds | 1 month in CHF | YTD 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 investments | 1 month in CHF | YTD 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
Liquidity | TAA 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 income | TAA 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 investments | TAA 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 |