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.
Economic outlook
The aggregate of published indicators points to an average global economic growth as well as falling inflation. However, while growth risks are pointing downward, inflation risks are pointing upward.
The USA stands out with strong growth. In contrast, the euro zone is stagnating while inflation is falling only slowly. Economic activity in China is currently weak. The interest rate hike cycle in the developed markets ends soon, that in the emerging markets is already over.
Scenarios:
1. Soft landing: If inflation continues to fall toward the central bank target, the scope for policy rate cuts next year increases. In addition, the supply side improves in this scenario (higher productivity growth). However, economic growth in the developed markets weakens to a below-average level due to the delayed effect of the key interest rate hikes. Probability: 40%.
2. Stagnation: Central banks stop raising policy rates, but monetary policies still become more restrictive: A) Rising real interest rates due to falling inflation. B) Falling neutral real interest rate after the temporary increase during the pandemic, but policy rates remain high due to persistent inflation risks. Probability: 40%.
3. Inflation / hard landing: The decline in inflation ends at a too high level or inflation even rises again because global economic growth remains resilient. Central banks raise key interest rates after an extended pause. Probability: 20%
Asset classes
Last month, we decided to adopt a defensive approach and reduced our portfolio’s overall risk. Moving forward into September, we stick to our defensive approach. We adjusted our positions slightly in September to factor in the potential of higher interest rates.
As it stands, investing in the present market remains challenging due to the different growth trajectories of the US, Europe, and China, with the latter two exhibiting uncertain outlooks.

Note: Portfolio positions of funds disclosed in this document are based on market developments at the time of going to print. In the context of active management, the portfolio positions mentioned may change at any time.
Equities
Our stance on equities shifted from overweight to neutral in August and we continue to hold this position in September. Despite strong labour markets, flattening forecasts for corporate earnings compared to strong results recently argue for a neutral positioning in equity markets.
From a regional point of view, we made the decision to decrease our allocation in Europe by 50% in the light of the region’s weakening economic conditions. We anticipate this will have an adverse effect on European equities. As a result, we have allocated the funds to the US and are steadily increasing our holdings there towards neutral stance.
After careful analysis of various sectors and investment styles, we have decided to make a strategic shift in our investment focus. Due to the current economic climate, we have decided to move away from investing in European small caps and instead focus on the European energy sector. Our decision is based on our anticipation of potential increases in energy prices, which we believe will be beneficial for energy companies.
Government bonds
We continue to be cautious of the government bond space given its poor momentum. It appears that there is a growing likelihood of a soft-landing in the US, which could result in a sustained increase in yields.
On the other side of the Atlantic, the European economy is facing slowing momentum. However, the ECB seems to be determined to continue its fight against inflation and keep rates at a higher level for longer. Central banks in the emerging markets are well ahead in the rate hike cycle and face headwinds in terms of slowing global economic outlook and a strengthening dollar.
Based on our yield outlook, we maintained our regional preferences in September unchanged. Our top choice are emerging markets local currency bonds, followed by Europe and emerging markets in hard currencies. The US remains our least preferred option.
Credit
European credit has shown relative strength compared to the US, where yields have risen more significantly. We have therefore chosen to add slightly to European high-yield bonds. The already elevated spread differential seem to have priced in much of the negative news regarding the European economy. Accordingly, the level seems fair to us.
Within some of our portfolios, we had allocated to US corporates. In light of negative momentum and the potential for further increases in yields, we have decided to reduce our positions.
Our stance on Asian high yield bonds remains unchanged, as we perceive the Chinese government’s initiatives to bolster the economy and uphold the real estate sector as a positive sign for the Asian high yield market.
Money Market
In the light of the inverted yield curve, our investment strategy currently prefers money market products. This preference is due to the attractive yields and the low-risk profile in terms of duration.
Commodities
In general, the investment environment for gold has deteriorated in our view. Due to the rise in yields and a simultaneous decline in inflation, real yields have risen noticeably. The opportunity costs (especially in real terms) of holding assets that do not generate current income have thus increased significantly once again. This is a negative factor for gold. As there are currently no signs of a reversal in the interest rate trend, we have decided to rate gold negatively and therefore sold our positions
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.