The global economy remains dynamic thanks to strong figures from the USA and Europe. By contrast, the most recent economic figures from China are disappointing. The Chinese economy has been weakening for some time. The zero-COVID strategy – which is forcing the Chinese government to impose repeated local lockdowns – is proving problematic. Tighter regulatory measures introduced by the Chinese authorities on the real estate market are pouring more oil onto the fire. The real estate market has often driven Chinese growth in the past.

But the current state of the global economy should prove sufficiently robust to overcome weakness in China. There has been little impact on global trade so far. The reaction on the financial markets to the imminent bankruptcy of the real estate developer Evergrande did not last long. This is why we are maintaining our neutral equity market positioning.

Interest rates are rising in Europe

Attention is increasingly shifting back to interest rates. Long-term interest rates in Europe rose last month, mainly due to unexpected inflation developments. At 3 percent, inflation in the eurozone was surprisingly high in August, as was the UK rate, at 3.2 percent. Despite the recent rise, however, European interest rates are still well below the pre-coronavirus level. In contrast, interest rates have trended sideways in the USA of late. This means they are even further below the pre-coronavirus level. It is worth noting that the debate over central banks withdrawing from their bond-buying programmes has had little effect on interest rates – neither in Europe nor in the USA.

Inflation risks are growing

Attention remains focused on US inflation. With rates currently standing at over 5 percent, the Federal Reserve’s 2 percent target is unlikely to be hit in the foreseeable future. Central banks are attempting to argue that the high inflation figures are temporary. In fact, factors such as energy prices in the New Year are highly likely to have an adverse effect on inflation. However, the utilization of production capacity in the USA is exceeding the pre-crisis level again, which means that the economy could be at risk of overheating. The USA may also see another sharp rise in living costs, which is a major driver of inflation. This high rate of inflation may also be reflected in interest rates at some point. In light of this, we are maintaining our underweighted position in global bonds.

Fair valuation of Swiss franc

High inflation rates in the eurozone have not only impacted on interest rates, but have also further reduced the overvaluation of the Swiss franc based on purchasing power parity. The Swiss franc is therefore no longer overvalued against the major currencies. This may restrict the extent of SNB interventions and increasingly expose the Swiss franc to market forces again. As a result, the Japanese yen is no longer a better insurance policy against market turbulence than the Swiss franc. For this reason, we are reducing our overweighted position in Japanese yen.

Performance of asset classes

Our positioning – Swiss focus