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Assets Allocation Comitee

End April 2018

« Upward Trend with downward spiral »

Now that the financial crisis is behind, economic expansion is blessing the whole world; with only a few exceptions, all countries should see their GDP grow in 2018. This growth will generate more profits for companies and more income for households. Central Banks do less need to play a stimulating role and are reducing, at different paces, the liquidity injected during their “Quantitative Easing” time that started since late 2008. Interest rates are headed upward.

USA

The American engine is living economic expansion that translates into higher corporate profits, higher household income (avg. hourly earnings), low unemployment and accompanied with fiscal stimuli. Rising consumer prices let fears of inflation (re-)surface; that with the end of “Quantitave Easing” are pushing long and short interest rates into nervous territory. Since the beginning of the year the yield curve moved up by 60 basis point, across all maturities. Every economic indicator and its subsequent revision is carefully watched and instantly passed to the financial markets.

Geopolitics and commercial policy, « USA vs rest of the world » are characterized by increased and new tensions that may or will affect some sectors of the US economy.

Conclusion :

Fundamentals are supportive for equities markets ; however nervousness, geopolitical tensions and rising rates may leave 2018 as a year to accumulate equities. Fixed Income maturities in less than 5 years should navigate without too many troubles and leave a slightly positive total return for the year.

Europe

Europe is in the wake of the end of the financial crisis. A patchy Europe still sees economic growth as measured by GDP and employment. Companies and households are faring better though unemployment remains high within the

largest members of the Euro-Zone. Central banks less have a role of supporting their economies through Quantitative Easing with some of them starting to think about what to do next, without a clear timetable though.

Short term interest rates are still and by wide below inflation rates and even negative; they are the sign that economic recovery remains fragile and linked to the health of Europe’s commercial partners and not yet the sign of internal, domestic momentum.

Conclusion:

Fundamentals remain positive for equities but their stock market performance will depend from a tense geo-political climate in which P/E ratios adjust correspondingly and with increased volatility.The EUR Fixed Income asset class is starting to feel the bite of rising rates and we expect a flat performance for 2018.

Emerging Markets

Emerging markets seem in a relatively good position to enjoy the rise in corporate profits and little fear of rising interest rates in 2018.

Political situations will be levers or locks, depending on domestic issues, like in Brazil, or international situations, like in Russia. So, and as not all Emerging Markets are the same, selectivity is the answer.

Alternative Investments

Non-precious commodities will enjoy robust demand and no shortage of supply. Again, only geo-political risks will create temporary peaks.

Gold is not anymore the only hedge against inflation but remains a political hedge. We expect a flat year for the yellow metal.

Hedge Funds :

With a return of volatility « event-driven », « long-short » and « global macro » strategies should perform well. We expect positive returns for 2018.

Currencies

The USD is under short term downward pressure, mirroring decisions under the banner « America First ». The evolution of the commercial and budget deficits will dictate the next long term trend. We believe that a robust US economy and positive short term interest rates will be supportive of the USD against other currencies in 2018.

Euro.

Political jitters of 2016/2017 have move to the background and renewed economic growth is now the main focal point. Euro is seen more attractive and thus gained and will continue to be firmer against so-called safe haven currencies like the Swiss Franc.

CHF

CHF is losing attractiveness as risks on other main currencies have receeded and as fiancial instruments, bonds and shares, in Swiss Francs fail to attract investors. We believe that this will last throughout 2018 and CHF should be weaker against major currencies.

CONCLUSION

After one quarter into 2018 we see this year as much as an opportunity as a risk ; the opportunity to buy equities on weakness, on exagerated fears, as economic and financial fundamentals are solid. Risks are mainly geopolitcal or geo-economical and their magnitude or impact are hard to assess. The risk of rising interest rates add to the previous ones and may brew some volatile cocktail. The backdrop remains : risk is preferred. Opportunism and vigilance will tilt our tactical asset allocation whilst the strategic asset allocation remains clearly exposed to risks, to chances.

 

 

 

 

End April 2018

 
« Upward Trend with downward spiral »

Now that the financial crisis is behind, economic expansion is blessing the whole world; with only a few exceptions, all countries should see their GDP grow in 2018. This growth will generate more profits for companies and more income for households. Central Banks do less need to play a stimulating role and are reducing, at different paces, the liquidity injected during their “Quantitative Easing” time that started since late 2008. Interest rates are headed upward.

USA

The American engine is living economic expansion that translates into higher corporate profits, higher household income (avg. hourly earnings), low unemployment and accompanied with fiscal stimuli. Rising consumer prices let fears of inflation (re-)surface; that with the end of “Quantitave Easing” are pushing long and short interest rates into nervous territory. Since the beginning of the year the yield curve moved up by 60 basis point, across all maturities. Every economic indicator and its subsequent revision is carefully watched and instantly passed to the financial markets.

Geopolitics and commercial policy, « USA vs rest of the world » are characterized by increased and new tensions that may or will affect some sectors of the US economy.

Conclusion :

Fundamentals are supportive for equities markets ; however nervousness, geopolitical tensions and rising rates may leave 2018 as a year to accumulate equities. Fixed Income maturities in less than 5 years should navigate without too many troubles and leave a slightly positive total return for the year.

Europe

Europe is in the wake of the end of the financial crisis. A patchy Europe still sees economic growth as measured by GDP and employment. Companies and households are faring better though unemployment remains high within the

largest members of the Euro-Zone. Central banks less have a role of supporting their economies through Quantitative Easing with some of them starting to think about what to do next, without a clear timetable though.

Short term interest rates are still and by wide below inflation rates and even negative; they are the sign that economic recovery remains fragile and linked to the health of Europe’s commercial partners and not yet the sign of internal, domestic momentum.

Conclusion:

Fundamentals remain positive for equities but their stock market performance will depend from a tense geo-political climate in which P/E ratios adjust correspondingly and with increased volatility.The EUR Fixed Income asset class is starting to feel the bite of rising rates and we expect a flat performance for 2018.

Emerging Markets

Emerging markets seem in a relatively good position to enjoy the rise in corporate profits and little fear of rising interest rates in 2018.

Political situations will be levers or locks, depending on domestic issues, like in Brazil, or international situations, like in Russia. So, and as not all Emerging Markets are the same, selectivity is the answer.

Alternative Investments

Non-precious commodities will enjoy robust demand and no shortage of supply. Again, only geo-political risks will create temporary peaks.

Gold is not anymore the only hedge against inflation but remains a political hedge. We expect a flat year for the yellow metal.

Hedge Funds :

With a return of volatility « event-driven », « long-short » and « global macro » strategies should perform well. We expect positive returns for 2018.

Currencies

The USD is under short term downward pressure, mirroring decisions under the banner « America First ». The evolution of the commercial and budget deficits will dictate the next long term trend. We believe that a robust US economy and positive short term interest rates will be supportive of the USD against other currencies in 2018.

Euro.

Political jitters of 2016/2017 have move to the background and renewed economic growth is now the main focal point. Euro is seen more attractive and thus gained and will continue to be firmer against so-called safe haven currencies like the Swiss Franc.

CHF

CHF is losing attractiveness as risks on other main currencies have receeded and as fiancial instruments, bonds and shares, in Swiss Francs fail to attract investors. We believe that this will last throughout 2018 and CHF should be weaker against major currencies.

CONCLUSION

After one quarter into 2018 we see this year as much as an opportunity as a risk ; the opportunity to buy equities on weakness, on exagerated fears, as economic and financial fundamentals are solid. Risks are mainly geopolitcal or geo-economical and their magnitude or impact are hard to assess. The risk of rising interest rates add to the previous ones and may brew some volatile cocktail. The backdrop remains : risk is preferred. Opportunism and vigilance will tilt our tactical asset allocation whilst the strategic asset allocation remains clearly exposed to risks, to chances.

chfassets: 
eurassets: 
usdassets: 
latamassets: