For the first time in years, global equities and bonds sold off in unison in 2022’s first quarter. The world has been dealing with the aftermath of a pandemic, high inflation levels, and a war in Europe. But even in the face of many uncertainties, we see opportunities in both equities and fixed income. Discover more in the findings of our latest Market Outlook report.
In a rapidly evolving investment landscape, it can be hard to see through sentiment and make practical decisions. Our in-depth report aims to answer the most relevant questions investors may have today – and in this article, we summarise its broader points.
Thoughts from our CIO
Our Group Chief Investment Officer Yves Bonzon has explained that portfolios positioned for a disinflationary environment and political stability will have to shift gears to survive the new market paradigm. In this respect, investors are well advised to favour real over nominal assets.
“The current market environment is one of the most challenging I ever faced in my career,” says Bonzon. As the red-flashing numbers on our preferred finance applications tell us, aside from cash, energy companies, and commodities, there is hardly any place to hide (and even the last two have been a poor hedge in recent weeks).
And while we still believe that we are most likely in the midst of a cyclical bear market driven by liquidity reduction rather than a US recession, the hard truth is that the world will probably not return to its status quo once the dust settles. Our latest report explores what this means for investors.
Getting defensive – the big picture
Central banks are tightening monetary policy to fight inflation. The full impact on the economy and financial markets is not yet known, but we believe that overall, the economies in many places seem to be well supported going into the summer.
In our view, therefore, equities are still our preferred asset class, but we now favour having a more defensive tilt in a portfolio. Discover the views of our Head of Research, Christian Gattiker, in our Market Outlook report.
Spotlight on inflation
While many emerging markets have had times of high inflation, as of late it has also been a developed-market phenomenon. In fact, many investors have had to invest in an inflationary period for the first time.
Although we believe that inflation will normalise in 2023, high inflation levels are likely to remain a top concern this year. In fact, the recorded high-single-digit figures show the true cost of holding cash in major currencies.
Within the report you can read our interview with Head of Investment Advisory Diego Wuergler. There, he shares his opinions on the current inflationary market environment by answering three major questions about inflation that many investors – and people in general – may have.
There is yield again in fixed income
Fixed income markets offer more attractive opportunities again after the sharp increase in yields. While bond yields could still rise higher (and bond prices lower) over summer, we believe that we are past the worst, with rate normalisation well advanced. Valuations in riskier segments also appear attractive with credit spreads now above long-term averages.
Moreover, our research analysts believe that global inflation will correct lower over time (as supply bottlenecks ease and the old structural disinflationary forces kick in again, at least to a certain degree) with a material decline in 2023 back to long-term averages. Discover what this means for investors in our Market Outlook Mid-Year 2022.
A thematic approach to sustainable investing
Our Next Generation franchise has been screening companies through the lens of structural change for a long time already, and the trend towards a more sustainable economy – i.e. one that meets certain environmental, social, and governance (ESG) standards – is definitely structural in nature.
Next Generation investing is not only about spotting the ‘next Microsoft’. It is a thematic investment philosophy backed by thought-leading research and the courage to stick with long-term investment cases even if short-term market moves shake our confidence that we have made the right investment decisions.
In our report, we have highlighted three accelerating structural trends and further explain the opportunities of each trend:
- Circular economy: This is quite a defensive theme for investors – which is a plus in the current market environment – and it enjoys strong regulatory support.
- Clean energy: A new round of innovation, investment, and political decision-making is under way in the realm of clean energy.
- Future mobility: The transition away from petrol- and diesel-powered vehicles is here to stay.