Erste Asset Management

Investment Update: First steps to interest rate hikes and volatility in the stock markets

Investment Update: First steps to interest rate hikes and volatility in the  stock markets
Investment Update: First steps to interest rate hikes and volatility in the stock markets
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Stocks posted significant gains Wednesday after Federal Reserve Chairman Jerome Powell signaled that the central bank would begin raising interest rates this month. The first rate hike will likely be followed by a series of increases of 25 basis points each. The Fed’s goal is to bring inflation back toward its 2% target while being “prudent” and maintaining economic growth. Powell pointed out that the impact of the war in Ukraine on the U.S. economy is highly uncertain.

Stock markets interpreted this as a positive signal in the sense that the threat to growth posed by the war in Ukraine did not warrant a change of course in monetary policy at this time. Conversely to the previous day, the U.S. benchmark index S&P 500 rose by 1.9%, while the EuroStoxx 600 closed 0.9% higher. The gains continued in today’s Asian trading session, with Japan’s Nikkei 225 posting gains of 0.7%.

Government bonds gave back some of their gains from the previous day. The yield on 10-year U.S. Treasury bonds rose by 15 basis points to 1.86%. The markets thus again expect about six interest rate hikes this year in the US. Market reaction was similar in Europe, where 10-year German government bond yields rose 10bps.

Crude oil prices continued to rise and currently stand at USD 118 per barrel. This was also helped by the US government’s announcement that it was open to imposing sanctions on Russian oil and gas.

How will we position ourselves in the funds?

We expect the volatility in the markets caused by the Ukraine crisis to persist in the coming weeks, meaning that the market environment will remain rough. From today’s perspective, our assessment of the key factors in the base case scenario is as follows:

Economy: From a macroeconomic perspective, we expect the global economic recovery scenario to continue in 2022. However, due to the sanctions imposed by the West and counter-sanctions from the Russian side, growth will be weaker than forecast at the beginning of the year. This results in part from the increased costs of energy and agricultural raw materials, which act as an additional tax burden for consumers and companies.

Inflation: This will also keep inflation at an elevated level for longer than assumed before the Ukraine crisis. Nevertheless, a decline in inflation by the end of the year seems likely from today’s perspective.

Monetary policy: We expect central banks at global level to implement their restrictive interest rate policy in a more moderate form than assumed at the beginning of the year.

Valuations: Due to the price declines in high-opportunity investments since the beginning of the year, their valuations now appear more attractive. Valuation ratios for global equities are more favorable than at the beginning of the year, as are credit spreads for corporate bonds.

Technical factors: Sentiment or sentiment in the market, on the other hand, has deteriorated, as have several technical indicators.

The above factors are still supportive of opportunity investing in the medium term. Nevertheless, risks have increased, stemming from the military action, sanctions and counter-sanctions around Ukraine.

Therefore, we will leave the risk appetite of our funds and portfolios at the now reduced level we implemented this week. This also applies to the equity quota. In our other high-opportunity investments, we will continue to invest very broadly across asset classes, regions and sectors. This includes, for example, high yield bonds from the USA and Europe (with a focus on the USA). We will maintain our diversifying investments in gold, U.S. government bonds, U.S. mortgage bonds and near-money market investments.

In addition, we will add further diversifying assets to the portfolios and funds. On the one hand, these include European government bonds, which have proven to be a safe haven this week. On the other hand, we will increase our gold allocation via broadly diversified commodity funds and include industrial metals and energy. Energy commodities could benefit in the event of a further escalation of the crisis and sanctions against Russian oil and gas supplies.

Legal note:
Prognoses are no reliable indicator for future performance.


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 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 A summary of the investor rights is available in German and English on the website and can also be obtained from the Management Company.

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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

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.

We are not permitted to directly or indirectly offer, sell, transfer, or deliver this financial product to natural or legal persons whose place of residence or domicile is located in a country where this is legally prohibited. In this case, we may not provide any product information, either.

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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Subject to misprints and errors.

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