Cautious course in a crisis-prone global economy


The various focal points in Japan, North Africa and the Arab states, as well as in the over-indebted countries of the Euro zone continue to hold markets spellbound. Because further shocks could endanger the recovery of the level of economic activity, we are retaining a neutral share quota as well as an overweight in commodities as a hedge...

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            The indebtedness crisis in the Euro zone continues to be of great importance for the market players. The overall package of help measures for over-indebted countries recently adopted by the responsible bodies is an important prerequisite for overcoming the crisis. But its end is still not in sight as a result. In the short term, the measures are intended above all to contribute towards stabilising the situation in Spain. In that country, the endeavours to consolidate government finances seem to be having their first successes. The bonus of trust by investors in the form of last decreasing credit spreads is therefore easy to understand. Nevertheless, the current economic recovery is too weak to be able to simply grow out of the problem of over-indebtedness. In view of the conflicts in several Arab countries and the still not foreseeable consequences of the serious nuclear accident in Japan, the global economy remains vulnerable with correspondingly negative consequences in the case of further shocks. Such a shock would, for example, be a rise in the price of petroleum of the sort WTI Crude to USD 150 per barrel. This price level would be a severe damper for the global economy. It is essential to take this into consideration in the investment policy.

            Fewer cyclical stocks – corporate bonds preferred
            In concrete terms we are “just” weighting shares neutral, although our model is still signalling an attractive valuation of stock markets. Within the equity strategy, we are reducing the previous overweight in cyclicals which would come more heavily under pressure in the case of looming economic decline. On the other hand, we are increasingly backing the energy and retail food trade branches.

            In the case of bonds, we are retaining a below average duration in the EUR and CHF portfolios. Otherwise the duration is neutral because an early increase in interest rates in the USA is still very improbable. We prefer corporate bonds to government bonds because many companies’ liquidity position continues to be good and, thanks to their cautious cost management, the risks of failures are slight.

            The overweight in commodities is suitable to absorb the negative effects of a massively increasing petroleum price.

            Stronger US currency probable
            We hold an overweight in the commodity currencies AUD and NOK. On the other hand, we expect a rather sinking trend in the case of EUR, CHF and JPY. The economic data lying slightly above expectations in the USA and the “very expensive” CHF should lead to the USD rising slightly against the Swiss currency in the medium term.


            Source: ETFWorld – Swisscanto (Thomas Härter – Head of Investment Strategy)

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