Erste Asset Management

Investment View | March 2024

Investment View | March 2024
Investment View | March 2024
Created by | Published on | Topics: Bonds, Equities, Markets
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What’s happening on the markets? In our Investment View, the experts of our Investment Division regularly provide insights of current market events and their opinion on the various asset classes.

Note: Due to the public holidays, the March edition exceptionally gets published at the beginning of April. Prognoses are not a reliable indicator of future performance. Please note that an investment in securities entails risks in addition to the opportunities described.

Economic outlook

Inflation rates are falling in developed economies, which is why key interest rate cuts have become likely this year. But the central banks are signalling that they want to wait before taking the first easing steps because the inflation risks are still to the upside. Inflation in the service sector has increased and freight costs have risen due to tensions in the Middle East. Wage growth especially in the EU is still closely monitored by the ECB.

In the USA, the likelihood of a soft landing has increased significantly. At the same time, GDP in the Eurozone is stagnating and China is under deflationary pressure.

Scenarios:

1. Soft landing: If inflation continues to fall towards the central bank target, the scope for key interest rate cuts for mid-2024 increases. In this scenario, the supply side also improves outside the USA (higher productivity growth). However, economic growth in the developed markets is weakening to below average level (reason: the previous key interest rate increases). Probability in our view: 60%

2. Stagnation: Monetary policies will remain restrictive for longer than priced in by the markets. Moderate key interest rate cuts only from the second half of 2024. Probability in our view: 30%

3. Inflation / hard landing: The decline in inflation stops at a level that is too high or inflation even rises again because global economic growth remains resilient and the central banks lowered key interest rates too early. Probability in our view: 10%

Asset classes

In March, we added a position in gold to our portfolio. Our outlook on gold is optimistic, driven by recent clearly positive developments and our goal to enhance portfolio diversification.

Typically, we allocate funds to the money market as a temporary parking spot, withdrawing them when better opportunities arise. Hence, we’ve decreased our allocation in the money market to reallocate funds into gold.

Note: Portfolio positions of funds disclosed in this document are based on market developments at 30.3.2024. In the context of active management, the portfolio positions mentioned may change at any time. Please note that an investment in securities entails risks in addition to the opportunities described.

Equities

Overall, we hold a neutral stance on the equity markets. Positive factors are of course the technical picture, satisfactory company earnings, and the positive economic trend in the US. In addition, interest rate cuts by central banks are possibly getting closer. Caution is advised by indicators suggesting a short-term overbought market situation and valuations slightly above historical averages.

From a regional and sectoral perspective, we’ve made several adjustments to our equity portfolio.

We’ve decided to close our tactical position in European energy companies due to diminishing concerns about energy price spikes due to the geopolitical situation. Nonetheless, we prefer to keep our exposure to the European region. Valuations in Europe appear to be at a fair value compared to the historical median (13 times forward PE). Although the ECB typically follows the lead of the FED, there’s a possibility it may act ahead of the US central bank this time. Additionally, it seems that the relative growth disappointments in the region may have reached their peak. Both factors supporting our belief in the companies in the region.

We’ve made a slight adjustment to our regional exposure within emerging markets as well. While maintaining a slightly cautious stance overall, we’ve shifted our preference towards Latin America. This decision is bolstered by supportive technical indicators and structural changes in the region, particularly with Mexico and Brazil potentially benefiting from the trend of nearshoring. To fund the increased position in Latin America, we’ve reduced the weight of the Asia ex Japan region. We believe that the current low valuations in Asia ex Japan reflect a lack of significant catalysts to stimulate growth in the region.

Note: Prognoses are not a reliable indicator of future performance. Investments in securities entail risks in addition to the opportunities.

Government bonds

In February, yields continued their upward trend from January. While the possibility of rate cuts remains, the expected timing for such actions has been postponed, leading to continuing increase in yields.

Our prudent strategy in positioning within the government bonds market has proven advantageous in light of these developments. Our negative stance on government bonds remains unchanged, with no change in terms of regional perspectives.

Credit

In our allocation, we maintain a caution stance on credit overall, while recognizing market opportunities. Despite tight spreads, European high-yield bonds offer short duration, attractive yields, and steady fundamentals. To diversify, we include corporate bonds from emerging markets and Asia specifically, as spreads remain relatively appealing there.

Note: Investments in securities entail risks in addition to the opportunities.

Money Market

Despite reducing our position in money market slightly, it remains one of our preferred asset classes. This preference persists due to its ability to capitalize on the appealing interest rates offered at the short end of the yield curve, while effectively mitigating portfolio risk.

Commodities

We turned positive on gold. Although the classic price drivers such as real interest rates and the development of the US dollar have recently argued against a rise in the gold price, the precious metal has reached a new all-time high. In particular, the massive increase in purchases by global central banks and the geopolitical situation are having a supportive effect – potentially falling real interest rates in the medium term also harbor further price potential.

Maintaining a neutral stance on oil, we balance geopolitical risks against sluggish economic activity.

For a glossary of technical terms, please visit this link: Fund Glossary | Erste Asset Management

Legal note:

Prognoses are no reliable indicator for future performance.

Please note that investments in securities entail risks in addition to the opportunities presented here.

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Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. The language of communication of the sales offices is German and the languages of communication of the Management Company also include English.

The prospectus for UCITS funds (including any amendments) is prepared and published in accordance with the provisions of the InvFG 2011 as amended. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in conjunction with the InvFG 2011.

The currently valid versions of the prospectus, the Information for Investors pursuant to § 21 AIFMG, and the key information document can be found on the website www.erste-am.com under “Mandatory publications” and can be obtained free of charge by interested investors at the offices of the Management Company and at the offices of the depositary bank. The exact date of the most recent publication of the prospectus, the languages in which the key information document is available, and any other locations where the documents can be obtained are indicated on the website www.erste-am.com. A summary of the investor rights is available in German and English on the website www.erste-am.com/investor-rights and can also be obtained from the Management Company.

The Management Company can decide to suspend the provisions it has taken for the sale of unit certificates in other countries in accordance with the regulatory requirements.

Note: You are about to purchase a product that may be difficult to understand. We recommend that you read the indicated fund documents before making an investment decision. In addition to the locations listed above, you can obtain these documents free of charge at the offices of the referring Sparkassen bank and the offices of Erste Bank der oesterreichischen Sparkassen AG. You can also access these documents electronically at www.erste-am.com.

N.B.: The performance scenarios listed in the key information document are based on a calculation method that is specified in an EU regulation. The future market development cannot be accurately predicted. The depicted performance scenarios merely present potential earnings, but are based on the earnings in the recent past. The actual earnings may be lower than indicated. Our analyses and conclusions are general in nature and do not take into account the individual characteristics of our investors in terms of earnings, taxation, experience and knowledge, investment objective, financial position, capacity for loss, and risk tolerance.

Please note: Past performance is not a reliable indicator of the future performance of a fund. Investments in securities entail risks in addition to the opportunities presented here. The value of units and their earnings can rise and fall. Changes in exchange rates can also have a positive or negative effect on the value of an investment. For this reason, you may receive less than your originally invested amount when you redeem your units. Persons who are interested in purchasing units in investment funds are advised to read the current fund prospectus(es) and the Information for Investors pursuant to § 21 AIFMG, especially the risk notices they contain, before making an investment decision. If the fund currency is different than the investor’s home currency, changes in the relevant exchange rate can positively or negatively influence the value of the investment and the amount of the costs associated with the fund in the home currency.

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Please consult the corresponding information in the fund prospectus and the Information for Investors pursuant to § 21 AIFMG for restrictions on the sale of the fund to American or Russian citizens.

It is expressly noted that this communication does not provide any investment recommendations, but only expresses our current market assessment. Thus, this communication is not a substitute for investment advice, does not take into account the legal regulations aimed at promoting the independence of financial analyses, and is not subject to a prohibition on trading following the distribution of financial analyses.

This document does not represent a sales activity of the Management Company and therefore may not be construed as an offer for the purchase or sale of financial or investment instruments.

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