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
A “soft” economic landing remains the most likely scenario. However, the risks have shifted: the probability of a US recession has decreased, while the probability of a no-landing scenario has increased.
In the US, we see strong growth in consumption, income and productivity and only a slight weakening in the labor market. The post-election red sweep could lead to higher inflation and stronger deregulation. The growth differential between the US and the rest of the world could also increase.
Scenarios
Scenario 1 (no landing): Robust growth and persistent inflation limit the scope for key interest rate cuts. Probability in our view: 30%.
Scenario 2 (soft landing): The inflation target is achieved in the medium term without triggering a recession. Key interest rates in developed markets can be cut significantly. Probability in our view: 40%
Scenario 3 (hard landing): Restrictive monetary policy, restrictive fiscal policy, slowdown in the labor market, stagnating productivity in the EU, deflation in China, persistent inflation, geopolitical risks (Middle East), industrial policy (tariffs), strikes (dockers). Probability in our view: 30%.
Asset classes
The most important market event of the year is behind us: Donald Trump has secured a second term as President of the United States. With the House of Representatives and Senate remaining under Republican control for at least two years, significant policy changes are expected.
Corporate and shareholder interests are likely to benefit from corporate tax cuts, while higher tariffs to protect US industry will increase costs for lower-income groups and could potentially dampen consumption. On the other hand, a push for reindustrialization could create more jobs and have a positive impact on unemployment and immigrant communities. However, a tight labor market with many vacancies but few skilled workers could lead to higher wages and increased inflationary pressure.
After the election results, both the US dollar and the stock markets recovered, reflecting the initial optimism. However, longer-term risks such as rising inflation, higher government debt and potential trade wars continue to be underestimated by the markets, making them vulnerable to setbacks. In light of this momentum, we have decided to keep our portfolios unchanged in the short term and maintain broad diversification. The current earnings season is developing positively, particularly in the US, and the interest rate cuts in both the eurozone and the US are expected to keep interest rates low in the medium term. While a change in central bank policy could lead to higher volatility, we do not expect such a change in the near future.
Note: Portfolio positions of funds disclosed in this document are based on market developments at 20.11.2024. 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
Equity markets remain equally attractive. The positive short-term momentum, driven by the favorable assessment of the US election outcome, contrasts with above-average valuations, resulting in a mixed outlook. Given the risks that remain, we continue to take a cautious approach and remain slightly underweight in equities. Recent price gains, supported by a strong reporting season and improved sentiment, have also increased the potential for setbacks.
Within our equity portfolios, we have adjusted the positioning to become less defensive, particularly in the US region, where strong growth prospects justify a more dynamic approach. We have established a position in US growth stocks as they are likely to benefit from the election results. Furthermore, their earnings outlook remains solid due to the dominance of tech companies with oligopolistic structures, enabling them to continue to grow even in the face of a potential general slowdown in earnings growth.
Conversely, we cut our exposure to US equities in half with minimal volatility to adjust for positive sentiment toward the US market. We also exited our position in US consumer staples as these defensive stocks could face margin pressure in a potential inflationary environment, without sufficient pricing power to offset rising costs under a Trump administration.
Government bonds
While central banks worldwide are in a cycle of easing, political developments are leading to greater uncertainty regarding future interest rate developments. The key factors influencing yields remain the economic outlook and inflation trends, with geopolitical tensions adding to potential volatility.
The outcome of the US election has pushed up long-term interest rates as concerns over rising government debt and inflation expectations increase. This trend is also putting upward pressure on interest rates in the eurozone.
Given elevated event risks – including “Trumpism” in the US and the collapse of Germany’s “traffic light coalition” – we continue to favor a neutral to short positioning to mitigate elevated event risks.
We keep our asset allocation unchanged from last month, with a neutral stance on European government bonds and a positive outlook on emerging market local debt. Their diversification benefits, coupled with central banks’ easing and potential currency strength, provide a supportive backdrop for the asset class.
Credit
We maintain a positive outlook on corporate bonds and prefer the high yield segment due to its shorter duration and still convincing total returns. Regional dynamics continue to determine our preferences:
We are positive about European high-yield corporate bonds, supported by expectations of interest rate cuts and a gradual return to economic growth in the region, which should support corporate bond fundamentals.
We also maintain a positive view on Asian high yield. The stimulus measures announced in China, as well as the low correlation of the segment with other markets, make Asian high yield particularly attractive.
Money Market
In the face of a flat to slightly rising yield curve, money market instruments remain attractive as they offer competitive yields and liquidity. They are a valuable addition to our allocation and provide stability and flexibility in the current market environment.
Commodities
We remain neutrally positioned on energy markets, as OPEC developments are in line with expectations and global oil supply remains ample. However, geopolitical risks in the Middle East could create potential for short-term volatility.
Our view on industrial metals also remains neutral. China’s economic policy will be the deciding factor, and the implementation of the recently announced stimulus measures will be crucial to market momentum.
We are positively disposed towards precious metals. Continued purchases by central banks and private investors support the asset class, while an intact technical picture and increased geopolitical risks further enhance its attractiveness.