Global CIO video: "Equity bull market still has legs."
Equity markets ended June and the first half of the year on a strong note. We look at the latest developments and our current views.
Investors were in for relief in recent weeks. The USA and China declared a truce on trade, the US Federal Reserve confirmed it is willing to cut rates, and the nomination of Christine Lagarde to succeed Mario Draghi at the helm of the European Central Bank implies policy continuity. Financial markets welcomed these developments, with major equity markets including the S&P 500 and the SMI hitting new record highs.
Taking profit on positive tactical equity view
We believe that equities continue to offer a positive return outlook even after their impressive run this year. However, we acknowledge that valuations are somewhat stretched and that low market liquidity in the summer months increases the risk of volatility. In light of this, we consider it prudent to take profit on our positive tactical view on equities, moving the asset class back to the strategic position.
Improved outlook for Eurozone equities
Separately, we shift our view on Eurozone equities back up to neutral, taking into consideration recent positive developments in terms of monetary policy and improving market momentum. Swiss equities have had a strong run this year, but their now rich valuations lead us to adopt a negative stance. In fixed income, we consider government bonds expensive and rather favor high-yield bonds as well as emerging market hard currency bonds.
Digitalization in focus
Strategically, our Supertrends remain an integral part of our equity holdings. The IT sector in particular continues to be attractive. High margins and an eventual US-China trade resolution should benefit our Supertrend "Technology at the Service of Humans."