Carry out a portfolio check

Portfolio check due to turbulent financial market situation

A turbulent year is drawing to a close: Inflation has increased, central banks have hiked interest rates and, in financial markets, fixed income, equities, and real estate have corrected broadly. So it's a good time to check your own portfolio.

Understand the current financial market situation

In order to make sound investment decisions, it is important to have a better understanding of the current market situation. In this regard, there are two main factors linked to high inflation: First, the easing of COVID measures and supply chain problems led to high demand for consumer goods. Second, the effects of the war in Ukraine have reached different sectors, i.e. energy as well as the agricultural production. Central banks started raising interest rates to counter inflation. The intention behind this is to reduce demand for goods and services.

Review your portfolio in three steps

Given the turbulent market situation and the expected worsening of the current bear market, it is worth reviewing your portfolio. 

1. Review your equity positions:

  • The Credit Suisse Investment Committee keeps equities at an underweight, as the combination of faltering economic growth, high inflation and tightening financial conditions is likely to keep the asset class under pressure.
  • Swiss equities have been moved to overweight as the Credit Suisse Investment Committee expects the market to prove more defensive during the cyclical downturn. The Investment Committee also expects healthcare to be more resilient than other sectors because of stable earnings growth and relatively attractive valuation.

Is it time to buy equities?

  • The market is forward looking but not all negative news seems to be priced in yet. There is more downside risk in the coming months.
  • It is recommended to reduce risk by going underweight equities without exiting markets completely.

2. Increase exposure to fixed income

  • As inflation risks peak and growth moderates globally, yield rises should slow and help government bonds achieve cash-like returns.
  • Emerging markets hard currency bonds are tactically attractive given high yields and fair spread compensation.
  • The Credit Suisse Investment Committee keeps duration close to benchmark in the US, the euro zone, the UK, and Switzerland.
  • The Investment Committee remains neutral on investment grade (IG) and high yield (HY) credit.

Is it time to buy bonds?

  • Interest rates and credit spreads have risen and are starting to provide a buffer against further rate increases.
  • Nevertheless, longer-dated bond yields often trade below short-term interest rates, meaning it is not yet attractive to take on too much duration risk. Selected segments seem attractive.

3. Diversify with alternative investments

  • Cautious stand on commodities due to mounting macro headwinds.
  • Energy poses a two-sided risk as winter approaches, metals are proving to be vulnerable, but agriculture is staying resilient.
  • In hedge funds, low-beta strategies remain preferred.
  • Valuations in private markets will likely stay under pressure until inflation has been persistently tamed – albeit less so than in public markets.
  • Listed real estate tends to outperform global equities in an economic downturn.

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