Our positioning: Inflation increases the risk of interest-rate hikes

The thriving global economy is defying weakening Chinese performance. US inflation is unlikely to return to the Federal Reserve’s target in the foreseeable future. We are maintaining our underweighted position in global bonds.

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.

However, there are many indications that inflation may remain high for a longer period.

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

Currencies1 month in CHFYTD in CHF1 month in LCYTD in LC
Currencies
EUR
1 month in CHF
1.6%
YTD Year-to-date: since the start of the year in CHF

1.0%

1 month in LC Local currency
1.6%
YTD Year-to-date: since the start of the year in LC Local currency
1.0%
Currencies
USD
1 month in CHF
1.7%
YTD Year-to-date: since the start of the year in CHF
4.8%
1 month in LC Local currency
1.7%
YTD Year-to-date: since the start of the year in LC Local currency
4.8%
Currencies
JPY
1 month in CHF
1.2%
YTD Year-to-date: since the start of the year in CHF
–1.3%
1 month in LC Local currency
1.2%
YTD Year-to-date: since the start of the year in LC Local currency
–1.3%

Equities1 month in CHFYTD in CHF
1 month in LCYTD in LC
Equities
Switzerland
1 month in CHF
–2.0%
YTD Year-to-date: since the start of the year in CHF
16.9%
1 month in LC Local currency

–2.0%

YTD Year-to-date: since the start of the year in LC Local currency
16.9%
Equities
World
1 month in CHF
2.0%
YTD Year-to-date: since the start of the year in CHF
23.2%
1 month in LC Local currency
0.3%
YTD Year-to-date: since the start of the year in LC Local currency
17.5%
Equities
USA
1 month in CHF
1.8%
YTD Year-to-date: since the start of the year in CHF
25.3%
1 month in LC Local currency
0.1%
YTD Year-to-date: since the start of the year in LC Local currency
19.5%
Equities
Eurozone
1 month in CHF
0.5%
YTD Year-to-date: since the start of the year in CHF
20.0%
1 month in LC Local currency
–1.1%
YTD Year-to-date: since the start of the year in LC Local currency
18.8%
Equities
United Kingdom
1 month in CHF
–0.2%
YTD Year-to-date: since the start of the year in CHF
18.9%
1 month in LC Local currency
–1.5%
YTD Year-to-date: since the start of the year in LC Local currency
12.4%
Equities
Japan
1 month in CHF
9.9%
YTD Year-to-date: since the start of the year in CHF
15.4%
1 month in LC Local currency
8.6%
YTD Year-to-date: since the start of the year in LC Local currency
17.0%
Equities
Emerging markets
1 month in CHF
2.3%
YTD Year-to-date: since the start of the year in CHF
5.3%
1 month in LC Local currency
0.6%
YTD Year-to-date: since the start of the year in LC Local currency
0.5%

Fixed income1 month in CHFYTD in CHF
1 month in LCYTD in LC
Fixed income
Switzerland
1 month in CHF
–1.2%
YTD Year-to-date: since the start of the year in CHF
–1.2%
1 month in LC Local currency

–1.2%

YTD Year-to-date: since the start of the year in LC Local currency
–1.2%
Fixed income
World
1 month in CHF
1.2%
YTD Year-to-date: since the start of the year in CHF
2.1%
1 month in LC Local currency
–0.5%
YTD Year-to-date: since the start of the year in LC Local currency
–2.5%
Fixed income
Emerging markets
1 month in CHF
2.9%
YTD Year-to-date: since the start of the year in CHF
5.4%
1 month in LC Local currency
1.1%
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
–1.8%
YTD Year-to-date: since the start of the year in CHF
6.2%
1 month in LC Local currency

–1.8%

YTD Year-to-date: since the start of the year in LC Local currency
6.2%
Alternative investments
Gold
1 month in CHF
–0.5%
YTD Year-to-date: since the start of the year in CHF
–3.0%
1 month in LC Local currency
–2.1%
YTD Year-to-date: since the start of the year in LC Local currency
–7.4%

Our positioning – Swiss focus

LiquidityTAA oldTAA new
Liquidity
CHF
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
11.0%
Liquidity
JPY
TAA old Tactical asset allocation: short- to medium-term positioning
1.0%
TAA new Tactical asset allocation: short- to medium-term positioning
0.0%
Liquidity
Total
TAA old Tactical asset allocation: short- to medium-term positioning
11.0%
TAA new Tactical asset allocation: short- to medium-term positioning
11.0%

Equities
TAA oldTAA 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
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
10.0%
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
8.0%
TAA new Tactical asset allocation: short- to medium-term positioning
8.0%
Equities
Total
TAA old Tactical asset allocation: short- to medium-term positioning
50.0%
TAA new Tactical asset allocation: short- to medium-term positioning
50.0%

Fixed incomeTAA oldTAA 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
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
29.0%
TAA new Tactical asset allocation: short- to medium-term positioning
29.0%

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