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.

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. 

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

Currencies1 month in CHFYTD  in CHF1 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%

Equities1 month in CHFYTD  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 income1 month in CHFYTD  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 investments1 month in CHFYTD  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

LiquidityTAA 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 incomeTAA 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 investmentsTAA 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%
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