Despite higher yields, we remain constructive. We consider the additional rate hikes priced in to be exaggerated and do not expect a new tightening cycle. Thanks to solid fundamentals, we continue to prefer equities, focusing on tech and cyclicals. Silver and AUD government bonds serve as a hedge.
Author: Roger Rüegg
September was eventful. Contrary to our expectations, the situation in Iran has escalated. As a result, the oil price is again trading close to the macroeconomically critical threshold of USD 100. In combination with robust US economic data (US PMIs > 58), this has led to a sharp rise in yields (US 10y > 5%). The market is now pricing in four additional rate hikes by the Federal Reserve (Fed) and the European Central Bank (ECB) (see chart). Although we also expect further rate hikes due to higher inflation rates, we consider market expectations to be exaggerated. Core inflation remains moderate and rate hikes have little impact in the event of an energy supply shock. In the eurozone in particular, rate hikes will trigger weaker economic growth. We therefore remain long duration in foreign bonds, especially in Australia. In CHF bonds we maintain a clear underweight, as the rise in yields there is now gaining momentum with a lag.
Despite the rise in yields and warnings from AI experts, tech was once again the clear winner in September. All other sectors ended the month in negative territory. Tech is therefore once again the driving force for the overall market. We are increasing our overweight by adding US equities.
The reasons:
While we are increasing our overweight in tech and cyclical stocks in our portfolio, we remain underweight in Swiss equities in view of their high valuations and defensive sector composition.
We are not making any changes to alternative investments. We are confirming our slight underweight in listed Swiss real estate. The combination of high premia, numerous capital increases and the global rise in yields is weighing on the market. This is reflected in the decline of the benchmark, the SWIIT index, which has fallen by -3% since the beginning of the year. However, seasonally stronger months are now ahead, as prices usually pick up again towards the end of the year.
In commodities, we continue to favour silver, while we still expect oil prices to fall. However, as the situation is very volatile and unpredictable due to the war involving Iran, we are remaining neutral in commodities for the time being. We are maintaining an overweight in catastrophe bonds, which are currently in the most interesting phase of the year (hurricane season).
We are reducing our underweight in USD. In return, we are downgrading CHF, which is in a downward trend due to the high interest rate differential versus other currencies. This is likely to reverse next year, as we expect policy rate hikes by the Swiss National Bank (SNB) and fewer rate hikes by the Fed. This will, however, require somewhat weaker economic data. Our favourite currency remains AUD, which is benefiting from high commodity prices and high carry. We are also overweight in emerging-market currencies and CAD.
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