Our positioning: Financial markets to face headwind

The economic recovery is levelling out. After a strong first half-year, the financial markets are expected to face headwind in the second half of the year.

Expansive monetary and fiscal policy helped the economy to make a rapid recovery this year. This was also reflected on the financial markets. The global equity markets generated a yield of over 18 percent in the first half-year alone. But the economic recovery has now peaked. This means that higher-risk investments will face increasing resistance. Momentum on the financial markets tailed off significantly last month.

This means that higher-risk investments will face increasing resistance.

Equity markets falter

The recent spike in coronavirus infection rates seems to be increasingly unsettling the markets. While European equities were still displaying strong momentum in the prior month, this has changed recently. The Asian equity markets also continued to falter, particularly China’s. The recent regulatory measures aimed at Didi, the Chinese equivalent of Uber, may have been a contributing factor. Only the US equity market performed well, thanks to its resurgent tech equities. We do not anticipate a repetition of the high equity yields of recent months in the second half-year and are tactically retaining a neutral equity position.

Declining interest rates

The economic recovery meant that further rises in interest rates were anticipated. However, since the sharp rise in mid-February, interest rates have fallen again significantly. Even the US Federal Reserve’s recent announcement of plans to start withdrawing from its expansive monetary policy only pushed long-term interest rates up briefly. 10-year interest rates in the USA have declined by over 0.3 percentage points within the last month. Neither the central banks nor high inflation rates seem capable of alarming the markets. As interest rates have diverged more significantly from pre-crisis levels again, we are maintaining our underweighted position in global bonds. We consider further interest rate cuts much less likely than a return to higher interest rates.

Valuation of real estate at record high

Further interest rate cuts have made Swiss real estate seem even more attractive. A premium of around 50 percent is currently being paid on Swiss real estate funds, which means that investors are paying 50 percent more than the net asset value. This premium has now reached an historic high. As a result, the overvaluation has also increased significantly once again. In light of this situation, retaining an underweighted position in Swiss real estate remains the best approach.

Japanese yen strong, gold diversified

Defensive currencies also performed strongly last month, while higher-risk commodity currencies fared less well. The Japanese yen proved extremely strong after previously experiencing weak demand this year. Despite this, it remains undervalued on a trade-weighted basis. The undervaluation and the recent correction support an underweighted position in yen, which – along with the overweighted position in gold – reflects our slightly defensive portfolio alignment. Gold proved attractive owing to its stronger diversification capacity, despite the fact that the gold price suffered sharp losses in mid-June. In a second half-year that is expected to be less rosy, gold could prove an extremely valuable asset in a portfolio.

Performance of asset classes

Currencies1 month in CHFYTD in CHF1 month in LCYTD in LC
Currencies
EUR
1 month in CHF
–0.5%
YTD Year-to-date: since the start of the year in CHF

0.3%

1 month in LC Local currency
–0.5%
YTD Year-to-date: since the start of the year in LC Local currency
0.3%
Currencies
USD
1 month in CHF
2.2%
YTD Year-to-date: since the start of the year in CHF
3.7%
1 month in LC Local currency
2.2%
YTD Year-to-date: since the start of the year in LC Local currency
3.7%
Currencies
JPY
1 month in CHF
2.5%
YTD Year-to-date: since the start of the year in CHF
–2.5%
1 month in LC Local currency
2.5%
YTD Year-to-date: since the start of the year in LC Local currency
–2.5%

Equities1 month in CHFYTD in CHF
1 month in LCYTD in LC
Equities
Switzerland
1 month in CHF
0.7%
YTD Year-to-date: since the start of the year in CHF
15.6%
1 month in LC Local currency

0.7%

YTD Year-to-date: since the start of the year in LC Local currency
15.6%
Equities
World
1 month in CHF
3.3%
YTD Year-to-date: since the start of the year in CHF
18.4%
1 month in LC Local currency
1.0%
YTD Year-to-date: since the start of the year in LC Local currency
14.2%
Equities
USA
1 month in CHF
5.1%
YTD Year-to-date: since the start of the year in CHF
20.4%
1 month in LC Local currency
2.8%
YTD Year-to-date: since the start of the year in LC Local currency
16.1%
Equities
Eurozone
1 month in CHF
–1.9%
YTD Year-to-date: since the start of the year in CHF
15.7%
1 month in LC Local currency
–1.4%
YTD Year-to-date: since the start of the year in LC Local currency
15.4%
Equities
United Kingdom
1 month in CHF
–1.6%
YTD Year-to-date: since the start of the year in CHF
16.8%
1 month in LC Local currency
–1.9%
YTD Year-to-date: since the start of the year in LC Local currency
11.3%
Equities
Japan
1 month in CHF
0.6%
YTD Year-to-date: since the start of the year in CHF
–0.7%
1 month in LC Local currency
0.6%
YTD Year-to-date: since the start of the year in LC Local currency
–0.7%
Equities
Emerging markets
1 month in CHF
0.4%
YTD Year-to-date: since the start of the year in CHF
9.5%
1 month in LC Local currency
–1.8%
YTD Year-to-date: since the start of the year in LC Local currency
5.6%

Fixed income1 month in CHFYTD in CHF
1 month in LCYTD in LC
Fixed income
Switzerland
1 month in CHF
0.6%
YTD Year-to-date: since the start of the year in CHF
–0.7%
1 month in LC Local currency

0.6%

YTD Year-to-date: since the start of the year in LC Local currency
–0.7%
Fixed income
World
1 month in CHF
2.1%
YTD Year-to-date: since the start of the year in CHF
1.0%
1 month in LC Local currency
–0.1%
YTD Year-to-date: since the start of the year in LC Local currency
–2.5%
Fixed income
Emerging markets
1 month in CHF
2.7%
YTD Year-to-date: since the start of the year in CHF
3.1%
1 month in LC Local currency
0.5%
YTD Year-to-date: since the start of the year in LC Local currency
–0.6%

Alternative investments1 month in CHFYTD in CHF
1 month in LCYTD in LC
Alternative investments
Swiss real estate
1 month in CHF
1.4%
YTD Year-to-date: since the start of the year in CHF
7.1%
1 month in LC Local currency

1.4%

YTD Year-to-date: since the start of the year in LC Local currency
7.1%
Alternative investments
Gold
1 month in CHF
–0.1%
YTD Year-to-date: since the start of the year in CHF
0.2%
1 month in LC Local currency
–2.2%
YTD Year-to-date: since the start of the year in LC Local currency
–3.4%

Our positioning – Swiss focus

LiquidityTAA oldTAA new
Liquidity
CHF
TAA old Tactical asset allocation: short- to medium-term positioning
8.0%
TAA new Tactical asset allocation: short- to medium-term positioning
8.0%
Liquidity
JPY
TAA old Tactical asset allocation: short- to medium-term positioning
1.0%
TAA new Tactical asset allocation: short- to medium-term positioning
1.0%
Liquidity
Total
TAA old Tactical asset allocation: short- to medium-term positioning
9.0%
TAA new Tactical asset allocation: short- to medium-term positioning
9.0%

Equities
TAA oldTAA new
Equities
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
26.0%
TAA new Tactical asset allocation: short- to medium-term positioning
26.0%
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
5.0%
TAA new Tactical asset allocation: short- to medium-term positioning
5.0%
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
5.0%
TAA new Tactical asset allocation: short- to medium-term positioning
5.0%
Equities
Total
TAA old Tactical asset allocation: short- to medium-term positioning
48.0%
TAA new Tactical asset allocation: short- to medium-term positioning
48.0%

Fixed incomeTAA oldTAA new
Fixed income
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
19.0%
TAA new Tactical asset allocation: short- to medium-term positioning
19.0%
Fixed income
World
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
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%
Fixed income
Total
TAA old Tactical asset allocation: short- to medium-term positioning
33.0%
TAA new Tactical asset allocation: short- to medium-term positioning
33.0%

Alternative investmentsTAA oldTAA new
Alternative investments
Swiss real estate
TAA old Tactical asset allocation: short- to medium-term positioning
3.0%
TAA new Tactical asset allocation: short- to medium-term positioning
3.0%
Alternative investments
Gold
TAA old Tactical asset allocation: short- to medium-term positioning
7.0%
TAA new Tactical asset allocation: short- to medium-term positioning
7.0%
Alternative investments
Total
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
10.0%
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