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: Prognoses are not a reliable indicator of future performance. Please note that an investment in securities entails risks in addition to the opportunities described.
Macro outlook
The current base scenario is “no landing”: inflation in the developed markets remains above target, growth remains on trend, yields trend sideways to higher. The US tariff increases reinforce the growth differences between the US and the rest of the world (boom in the US, weak growth in Europe). In this scenario, the Federal Reserve makes only a slight downward adjustment to its key interest rate policy (to 4%, with upside risks). The ECB cuts to 1.75% (downside risks).
Scenarios
Scenario 1 (no landing/heterogeneous environment): Trend towards growth in developed markets. The US tariff increases widen the gap between the USA and the rest. While growth in the US is forecast at 2.3% in 2025 in this scenario, it should be just 0.8% in the eurozone. The inflation trend would also be heterogeneous: USA 2.4%, Eurozone 1.8%. In this case, the Fed would only cut its key interest rates slightly to 4%, while the ECB would make stronger interest rate cuts to a level of 1.75%. Probability from our perspective: 35%
Scenario 2 (soft landing/normalization): Weaker growth below potential. However, growth in the eurozone remains low. Inflation falls towards the target value. The central banks respond with significant interest rate cuts. Probability from our perspective: 25%.
Scenario 3 (stagflation/trade war): A potential trade war would increase inflation and reduce growth. Economic sentiment would deteriorate and global trade and production would be at risk of shrinking. On a geopolitical level, higher energy prices would have an impact. Both monetary and fiscal policy would respond with easing. Probability from our perspective: 25%.
Scenario 4 (recession/restrictive policy): Monetary and fiscal policy remain restrictive for too long, which would lead to a significant slowdown in the labor market and falling inflation. A trade war, stagnating productivity in the EU and potential deflation in China would be risk factors. Probability from our perspective: 15%
Asset classes
Apart from the biggest uncertainty factor, namely Donald Trump, the starting position for 2025 can be seen as quite positive. The global economy is growing, interest rates have improved and corporate profits are likely to continue growing at double-digit rates in 2025. Even if the spoken word often suggests otherwise, we believe that Donald Trump will be wary of implementing overly extreme measures. His headline grabbing bluster is often just a means to an end in order to achieve the desired “deals”.
Even if volatility will increase in view of the heightened uncertainty, we currently see more opportunities than risks for 2025. We are therefore maintaining our slightly underweight equity positioning and view equities as a key portfolio component with lower but still solid upside potential.
Note: Please note that investing in equities entails risks as well as opportunities.
In contrast to equities, the performance of bonds last year was like a rollercoaster ride. The first trading days of the new year also promise increased volatility. For example, 10-year US interest rates have recently risen significantly again to 4.7% and their German counterpart also appears relatively attractive at 2.5%. We therefore continue to prefer a broad mix of medium-term bonds.
In addition to supposedly safe government and corporate bonds, we are also taking advantage of the intact momentum in high-yield bonds, but remain vigilant in view of the low spread levels. After a rise of more than 30%, expectations for gold must also be scaled back somewhat. In view of the increased demand from global central banks and the fact that uncertainty has risen, the precious metal remains an important portfolio component.
Note: Portfolio positions of funds disclosed in this document are based on market developments at 27.1.2025. 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
Since August last year, we have maintained a slightly underweight equity allocation due to ongoing risks, in particular the threat of a trade war as a result of Trump’s presidency. On a positive note, we are seeing favorable momentum from the US and rising corporate earnings.
From a regional perspective, we hold an underweight position in the US region as we view the high valuations as a headwind. The P/E (price-to-earnings) ratio in the US market is now 22, compared to a historical average of 17.3 since 2011. Conversely, we are overweight the UK and Europe, focusing on sector and factor-based opportunities – particularly European energy companies and European small caps.
We believe that European growth is on a sustainable trajectory. Combined with the expected interest rate cuts (up to 4 this year), the conditions seem favorable for small cap stocks to outperform their large cap counterparts. Historically, small caps have outperformed in a lower interest rate environment due to their higher growth potential and flexibility. In addition, European small caps’ greater exposure to the real estate sector and lower exposure to financials compared to large caps offers a relative performance advantage in a falling interest rate scenario.
Our active position in the European energy sector depends on geopolitical dynamics. Geopolitical risks, such as the Russia-Ukraine conflict and tensions in the Middle East, underline the need to hedge against potential energy price spikes.
Despite an overall underweight stance in the US, we maintain active positions in certain sectors and factors. The US presidential election has created positive sentiment for US growth stocks, many of which continue to show positive earnings momentum supported by monopolistic or oligopolistic market positions.
Our defensive approach in the US is reflected in an overweight position in US healthcare. After underperforming in 2024, the sector now offers attractive valuations and robust long-term drivers, including an ageing population and rising demand for healthcare. In addition, healthcare companies are demonstrating improved business fundamentals, such as cash flow growth. The sector offers a mix of defensive and growth-oriented characteristics, making it well suited to different market scenarios.
Government bonds
Growing concerns about a renewed rise in inflation in the US and the cautious stance of central banks have led to a significant rise in yields in recent weeks. While the environment of higher interest rates offers opportunities on the bond markets, we remain cautious with regard to duration.
We maintain a negative duration bias and prefer government bonds denominated in euros and in the local currency of emerging markets to government bonds denominated in US dollars and the hard currency of emerging markets.
The growth differential between the US and Europe is expected to widen, with European interest rates likely to fall more sharply than US interest rates in 2025. This dynamic supports European duration.
However, political uncertainties, including the elections in Germany and the challenges facing the French budget, could have an impact on the sustainability of public finances and market stability.
Yields in the US remain under pressure due to persistent budget deficits, geopolitical fragmentation and the potential for higher term premia in the short term. In addition, fiscal stimulus and deregulation efforts could support growth in the US and increase the equilibrium yield level, which would have a further impact on the bond markets.
We maintain our positive outlook on emerging market local currency bonds, which is supported by attractive valuations and robust growth in emerging markets. Another positive factor is the possible end to currency devaluation in emerging markets.
Credit
We maintain our positive outlook on corporate bonds and emphasize selective opportunities in regions and segments with attractive risk/return profiles. Given the supportive macroeconomic fundamentals and attractive total returns, we continue to lean towards riskier corporate bonds, but are cognizant of the high valuations across the segment.
Our focus remains on European and Asian high yield bonds, while we take a cautious stance on investment grade bonds and the US region. We recognize that the potential for further spread tightening is limited and that robust corporate fundamentals, low levels of non-performing loans and strong demand for new issuance continue to support the credit markets.
We remain optimistic on European high yield bonds as the ECB is taking a supportive stance and European growth is on a sustainable path. These factors, together with favorable valuations, make them a good option.
Asian high yield bonds benefit from China’s stimulus measures and their low correlation with other markets, providing diversification and robust return potential.
Money Market
With a flat to slightly rising yield curve, money market instruments continue to offer competitive yields and liquidity. These instruments serve as a reliable complement to our broader allocation strategy and provide both stability and flexibility in navigating the current market environment.
Commodities
The pleasing development of the gold price ensured a clearly positive performance in the segment. After a stabilization phase, the trend should pick up speed again towards the end of the year. We are retaining gold as a diversifier.