The economic outlook in the industrial nations remains gloomy. Quarterly growth in the USA has halved, while both Europe and the UK have seen meagre growth of just 0.1 percent. The global trade situation is challenging too. Declining imports in Europe and the USA point to weakening domestic demand. The central banks are still facing persistently high inflation, and those in the USA, Europe and UK raised policy rates by another 0.25 percent. Our leading indicators continue to point towards a downturn. That means we’re maintaining our core scenario of a recession and remain defensively positioned.
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Our positioning: The air’s getting thinner
Fears of recession in the industrial nations continue to mount and the financial markets are also slowly losing momentum. We’re retaining our defensive positioning in this uncertain environment. We see an opportunity to purchase emerging market equities.
This means we’re maintaining our core scenario of a recession and remain defensively positioned.
Momentum wanes on the financial markets
The gloomy economic outlook is having an increasing impact on the financial markets. Momentum waned on the equity markets last month. Only the Swiss and Japanese stock markets rose sharply again. At almost 20 percent, the annual return of the Japanese stock market measured in local currency is now just as good as that generated by the technology-based NASDAQ index in the USA. A major factor behind this strong performance is the Japanese central bank’s reaffirmed commitment to its ultra-expansive monetary policy. The stock market was boosted not just by these low capital market interest rates, but also by inflation, which is now rising in Japan too. High inflation rates initially lead to higher margins for companies, benefiting share prices. But they also mean consumers have to contend with higher inflation. Consumption and the stock market are therefore likely to run out of steam in the long term.
Momentum also declined on the bond markets, despite the central banks in the USA, Europe and the UK raising interest rates again. That hasn’t changed much at the long-term end of the yield curve. 10-year yields to maturity in Germany remain below 2.5 percent, while they’re fluctuating around 3.5 percent in the USA. The debate over the debt ceiling in the USA has created slight upward pressure recently, but the effect remains limited so far. Market participants now even expect policy rates to fall sharply during the second half of the year.
Opportunity to buy emerging market equities
Against the backdrop of growing recessionary concerns and persistently high inflation in the USA, the US dollar may also continue to struggle. Although the US currency recovered slightly last month, it remains overvalued on a trade-weighted basis. That means the US dollar may depreciate further. Historically, emerging market investments, in particular, have benefited from a weak US dollar. Economic growth in the emerging economies is also more promising than in the industrial nations. India and Indonesia are performing well economically. And China is stirring from its deep coronavirus-induced slumber, albeit hesitantly. After losing ground last month, emerging market equities now represent an attractive buying opportunity, so we’re increasing our emerging market equity allocation slightly.
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 –0.8% |
YTD Year-to-date: since the start of the year in CHF –1.6% |
1 month in LC Local currency –0.8% |
YTD Year-to-date: since the start of the year in LC Local currency –1.6% |
Currencies USD |
1 month in CHF 0.0% |
YTD Year-to-date: since the start of the year in CHF –2.8% |
1 month in LC Local currency 0.0% |
YTD Year-to-date: since the start of the year in LC Local currency –2.8% |
Currencies JPY |
1 month in CHF –2.3% |
YTD Year-to-date: since the start of the year in CHF –7.5% |
1 month in LC Local currency –2.3% |
YTD Year-to-date: since the start of the year in LC Local currency –7.5% |
Equities | 1 month in CHF | YTD in CHF | 1 month in LC | YTD in LC |
---|---|---|---|---|
Equities Switzerland |
1 month in CHF 1.6% |
YTD Year-to-date: since the start of the year in CHF 9.8% |
1 month in LC Local currency 1.6% |
YTD Year-to-date: since the start of the year in LC Local currency 9.8% |
Equities World |
1 month in CHF 0.0% |
YTD Year-to-date: since the start of the year in CHF 6.1% |
1 month in LC Local currency 0.0% |
YTD Year-to-date: since the start of the year in LC Local currency 9.2% |
Equities USA |
1 month in CHF 0.2% |
YTD Year-to-date: since the start of the year in CHF 5.8% |
1 month in LC Local currency 0.2% |
YTD Year-to-date: since the start of the year in LC Local currency 8.9% |
Equities Eurozone |
1 month in CHF –0.9% |
YTD Year-to-date: since the start of the year in CHF 11.8% |
1 month in LC Local currency 0.0% |
YTD Year-to-date: since the start of the year in LC Local currency 13.6% |
Equities United Kingdom |
1 month in CHF –0.9% |
YTD Year-to-date: since the start of the year in CHF 5.3% |
1 month in LC Local currency –1.8% |
YTD Year-to-date: since the start of the year in LC Local currency 5.0% |
Equities Japan |
1 month in CHF 2.9% |
YTD Year-to-date: since the start of the year in CHF 5.8% |
1 month in LC Local currency 5.4% |
YTD Year-to-date: since the start of the year in LC Local currency 14.3% |
Equities Emerging markets |
1 month in CHF –2.6% |
YTD Year-to-date: since the start of the year in CHF –0.2% |
1 month in LC Local currency –2.6% |
YTD Year-to-date: since the start of the year in LC Local currency 2.7% |
Fixed income | 1 month in CHF | YTD in CHF | 1 month in LC | YTD in LC |
---|---|---|---|---|
Fixed income Switzerland |
1 month in CHF 1.4% |
YTD Year-to-date: since the start of the year in CHF 3.0% |
1 month in LC Local currency 1.4% |
YTD Year-to-date: since the start of the year in LC Local currency 3.0% |
Fixed income World |
1 month in CHF –0.2% |
YTD Year-to-date: since the start of the year in CHF –0.5% |
1 month in LC Local currency –0.1% |
YTD Year-to-date: since the start of the year in LC Local currency 2.4% |
Fixed income Emerging markets |
1 month in CHF –0.4% |
YTD Year-to-date: since the start of the year in CHF –1.4% |
1 month in LC Local currency –0.4% |
YTD Year-to-date: since the start of the year in LC Local currency 1.4% |
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 –0.9% |
YTD Year-to-date: since the start of the year in CHF 2.3% |
1 month in LC Local currency –0.9% |
YTD Year-to-date: since the start of the year in LC Local currency 2.3% |
Alternative investments Gold |
1 month in CHF –1.1% |
YTD Year-to-date: since the start of the year in CHF 5.8% |
1 month in LC Local currency –1.1% |
YTD Year-to-date: since the start of the year in LC Local currency 8.9% |
Our positioning – Swiss focus
Liquidity | TAA old | TAA new |
---|---|---|
Liquidity CHF |
TAA old Tactical asset allocation: short- to medium-term positioning 12.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 11.0% |
Liquidity Total |
TAA old Tactical asset allocation: short- to medium-term positioning 12.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 11.0% |
Equities | TAA old | TAA new |
---|---|---|
Equities Switzerland |
TAA old Tactical asset allocation: short- to medium-term positioning 23.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 23.0% |
Equities USA |
TAA old Tactical asset allocation: short- to medium-term positioning 8.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 8.0% |
Equities Eurozone |
TAA old Tactical asset allocation: short- to medium-term positioning 1.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 1.0% |
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% |
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% |
Equities Emerging markets |
TAA old Tactical asset allocation: short- to medium-term positioning 8.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 9.0% |
Equities Total |
TAA old Tactical asset allocation: short- to medium-term positioning 44.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 45.0% |
Fixed income | TAA old | TAA new |
---|---|---|
Fixed income Switzerland |
TAA old Tactical asset allocation: short- to medium-term positioning 17.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 17.0% |
Fixed income World |
TAA old Tactical asset allocation: short- to medium-term positioning 6.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 6.0% |
Fixed income Emerging markets |
TAA old Tactical asset allocation: short- to medium-term positioning 8.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 8.0% |
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 31.0% |
Alternative investments | TAA old | TAA new |
---|---|---|
Alternative investments Swiss real estate |
TAA old Tactical asset allocation: short- to medium-term positioning 8.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 8.0% |
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% |
Alternative investments Total |
TAA old Tactical asset allocation: short- to medium-term positioning 13.0% |
TAA new Tactical asset allocation: short- to medium-term positioning 13.0% |