Investments in March: our forecast in brief

Equity allocation still at strategic level

In light of the as-yet uncertain consequences of the coronavirus outbreak and high valuations, we are holding our equity allocation at the strategic, neutral level. Within the equity allocation, we are overweighted in commodity-oriented UK equities. They are also a defensive complement to the equally defensive Swiss home market. Due to their unattractive yields, we are underweighted in Swiss bonds and are adding in foreign high-yield bonds. In commodities, we continue to recommend a slight overweight, as prices have good upside potential.

Economy: coronavirus temporarily slowing global economy

Shortly after the recovery of the global economy began to accelerate, it has slowed down again. The coronavirus outbreak is disrupting global supply chains and uncertainty is curbing corporate investments. Nonetheless, we have only slightly reduced our growth forecasts for the global economy. Industrial activity is likely to largely recover from this setback in the second half of 2020, not least thanks to stimulus measures in China and elsewhere.

The coronavirus outbreak also represents a risk for the Swiss economy. Once again, local economic growth is likely to be only modest in 2020. Vigorous pharmaceutical exports will ensure an increase in export volume despite stagnating sales in the machinery, electrical, and metal industries. The labor market remains robust, which will shore up consumer sentiment and consumer spending.

Bonds: the search for yields in the bond segment

Bonds have reacted to the coronavirus outbreak with price gains. The consequently lower interest rates have made it even more difficult to achieve positive returns in the Swiss franc and euro segments. As in the US dollar segment, we prefer short terms in these segments to mitigate the risk of setbacks if interest rates rise. It is still possible to achieve positive returns in bond segments, albeit with slightly higher risk.

Currencies: appreciation of the US dollar likely to come to a halt

Uncertainties surrounding the coronavirus outbreak, the relative strength of the US economy when compared to the eurozone and the US interest rate advantage have combined to cause continued appreciation of the US dollar. However, we expect the global economy to recover noticeably in the second half of the year, which should strengthen the more cyclical currencies against the defensive US dollar. We therefore maintain our neutral stance on the US dollar against the euro and the Swiss franc.

Equities: higher valuations against lower interest rates

Despite increased uncertainty, equities have once again risen sharply. As a result, equity valuations have continued to increase and now appear to be somewhat inflated. At the same time, the capital market environment, with its expansionary monetary policy and low or even negative bond yields, continues to speak for equities. We therefore remain cautiously positive. There is still no way to avoid equities in a well-diversified portfolio.

Commodities: temporary setback for cyclical commodities

Prices for cyclical commodities, especially oil and metals, have experienced a setback due to the sharp downturn of industrial activity in China. Uncertainty and volatility are likely to remain high in the short term, as it is not yet clear how long production will remain interrupted. In the medium term, however, these commodities show recovery potential. In the current environment of extremely low interest rates, gold continues to offer diversification benefits.

Real estate: apartment leasing requires patience

In many Swiss regions, apartment hunters are finding an extensive offering. Rental apartments are being advertised for an average of 40, 50, or even more days. In cities like Zurich, Geneva, and Zug, however, the average advertisement disappears from the internet after less than 25 days. This is unlikely to change for the time being, as construction activity there has been unable to keep up with demand.