Tesla and co. are soaring

The share prices of well-known tech giants, such as Amazon, Apple, Facebook, Netflix and Tesla, give no indication that we are in a global recession. The prices of the ten companies in the FANG+ index – which includes the two Chinese Internet giants Alibaba and Baidu, in addition to the equities mentioned above – have almost doubled since March. Prices rose especially sharply again last month.

The performance of these equities is typical of current developments on the stock exchanges. It is not optimism about the economic situation that is driving prices up, but rather the lack of alternatives, the search for the winners of the future and the fear of losing out on equity price gains. In fact, professional investors do not appear to be particularly optimistic. According to the monthly survey carried out by the American Association of Institutional Investors, only 30 percent expect significant price rises over the coming months. The percentage of optimists was not much lower during the stock market crash in the spring.

The lack of optimism has recently been reflected in equities in the industry, finance and luxury goods sectors, which are heavily dependent on economic trends. They have made significantly lower price gains over recent weeks than the tech equities. The performance of real estate investments traded on the stock exchanges is also subdued. The outlook of the US bond markets seems downright pessimistic. Long-term real interest rates, which have historically been the best reflection of the economy, are at a record low.

Economic recovery will lose momentum

We also anticipate that the economic situation will remain challenging. While the relaxation of lockdown measures over recent weeks has seen many economic indicators recover strongly, there is uncertainty over how the situation will develop. A rapid recovery to pre-crisis levels is not expected – on the contrary, we increasingly anticipate unpleasant surprises.

This means that an overall defensive positioning of the portfolios is advisable. In the portfolios entrusted to us, we are cautiously positioned in equity investments and prefer the defensive Swiss market to the European, UK and emerging markets. We are also continuing to hold investments in gold and the Japanese yen.

Profit-taking from gold investments

We have once again made two changes to our positioning this month. Firstly, we are taking profits made on gold investments. In April, we decided to increase the gold quota in the portfolios again. This took the level of gold investments in our portfolios to twice that in the neutral investment strategy. The price of an ounce of gold has since risen by just under 10 percent. With our first reduction, we are realizing some of the gains made, but maintain an overweight position.

We are also reducing the underweight position of equities in emerging markets. Because these equities are heavily dependent on the international economic situation, we reduced them significantly in the spring. This strong positioning is no longer advisable in our view. This also allows our portfolios to benefit from a weaker dollar. Equities from emerging markets benefit from a potential weakening of the dollar more than any other asset class.

Performance of asset classes

Our positioning – Swiss focus