Don’t put all your eggs in one basket

Are we on the brink of a recession? This question is currently a source of worry for financial markets. Completely accurate recession predictions are impossible, which is why we recommend gradually reducing the risks in your portfolio.

The summer storms we feared a month ago have indeed come to pass, both for the Swiss summer and on the financial markets. The trigger for these storms on the financial markets was a recent escalation in the trade conflict between the USA and China. Following the US president’s announcement of additional trade tarifs, the Chinese renminbi declined in value.

These summer storms resulted in a wide discussion as to whether another recession is just around the corner. Are the storms also a sign of bad weather to come? 

The spectre of recession

The fact that the financial markets fear a recession need not in itself be a cause for concern. After all, the spectre of a recession has been looming for quite some time. As early as 2016, weakening investment figures led some people to worry that the USA was on the brink of a recession, which in turn resulted in a general feeling of uncertainty on the markets. But, as we all know, any fears were soon quick to evaporate.

At the same time, there is no question that the outlook for the economy has deteriorated significantly over the past few months, and the list of political hurdles caused by conflicts is still long. There is tension all over the world, and Brexit will soon be re-entering a critical phase. 

It’s a better idea to adjust your portfolio step
by step.

The difficulty of predicting the next recession

It is impossible to predict recessions with complete accuracy. No matter how much data has been collected or how many mathematical models have been created, the fact remains that it just isn’t possible to predict how individuals will behave. The current situation is an excellent illustration of this problem: while we know that uncertainty surrounding political risks results in less growth, we do not know how these risks will develop. It all depends on decisions made by individual politicians. At the same time, we know that the central banks will use a wide range of measures to try and delay the start of the recession. But as for the exact nature of the measures the central banks’ managing bodies will choose and how successful they will be – that remains to be seen. 

A cautious approach is justified

We know that growth is very likely to be weak – we just don’t yet know how weak. How should we proceed amid this uncertainty? It is not a good idea to put all your eggs in one basket – recession or no recession. A better idea is to adjust your portfolio step by step so that it truly reflects the growth risks. In our view, the lower rates of growth anticipated and the greater levels of political risk justify adopting a cautious approach. For this reason, we have further reduced the risks in our portfolios. As for the future, we are as always following developments closely – and will react accordingly. Step by step. 

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