Insights et vue du marché
As expected, the US Federal Reserve (Fed) last week raised its key interest rate by a further 25 basis points to a new target range of 5.00-5.25%. With this step the Fed has raised the Fed funds rate by 500 basis points in the last 14 months - the steepest rate hike cycle in the last 40 years. Now the Fed is likely to take an expected pause, although the term "breather" would be more appropriate.
On the one hand, because of the time lag as the US monetary authorities want to analyse how the rate hikes in the recent months have affected economic growth, the labour market and the still-high inflation level. On the other hand, Fed Governor Jerome Powell gave no indication won at the latest press conference that the fight against inflation is already won. It is likely that interest rates will remain higher for longer. Markets are pricing in another three to four rate cuts by the end of the year. We do not expect this to materialise.
The US labour market data for April impressively showed that there is no relief in sight. The unemployment rate even fell to 3.4%, while analysts had anticipated an increase from 3.5% to 3.6%. Wage inflation also rose from 4.2% in March to 4.4%. These figures confirm that the Fed's pause is probably more a breather, not a turnaround or reversal of the current interest rate cycle. At best, we have now already seen the last rate hike, but we are still months away from rate cuts.
The regional banking crisis in the US hangs like a sword of Damocles over the financial markets. The Fed's massive cycle of interest rate hikes is claiming more and more victims among regional banks. The problem still appears to be under control, but with each troubled bank, investors’ nerves are further tested. JP Morgan's acquisition of First Republic Bank was greeted with some satisfaction by the broader equity markets, but the next few weeks will show whether the crisis in US banking remains contained or spreads to the entire banking system.
The second tail risk is the US debt ceiling, which we discussed at this point two weeks ago. The deadline is fast approaching, and US Secretary of the Treasury Janet Yellen warns of the potentially devastating consequences on an almost weekly basis. We still expect a last-minute solution but expect insecurities and nervousness to accelerate in the coming weeks.
Given these challenges, we recommend that investors remain selective in the coming weeks. We have a clear preference for equities from the rest of the world over the US and prefer stocks that have been able to convince investors in the running corporate earnings season. At the same time, gold remains a safe anchor in our portfolios in stormy times.
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Responsible for compilation: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel, Switzerland. Responsible supervisory authority: Swiss Financial Market Supervisory Authority FINMA, Laupenstrasse 27, CH-3003 Berne, Switzerland. Responsible for distribution within the meaning of article 8 FinMV [Financial Analysis Market Abuse Ordinance]: LGT Bank Ltd., Herrengasse 12, 9490 Vaduz, Principality of Liechtenstein. Responsible supervisory authority: Liechtenstein Financial Market Authority (FMA), Landstrasse 109, P.O. Box 279, 9490 Vaduz, Principality of Liechtenstein. Responsible for distribution within the meaning of the Directives on the Independence of Financial Research from the Swiss Bankers Association (SBA): LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel, Switzerland. Responsible supervisory authority: Swiss Financial Market Supervisory Authority FINMA, Laupenstrasse 27, CH-3003 Berne, Switzerland. Responsible for distribution within the meaning of section 48f BörseG [Stock Exchange Act] and the circular regarding financial analysis in connection with the interpretation of section 48f Stock Exchange Act [Börsegesetz (BörseG)]: LGT Bank AG, Zweigniederlassung Österreich, Bankgasse 9, A-1010 Vienna, Austria. Responsible supervisory authority: Liechtenstein Financial Market Authority (FMA), Landstrasse 109, P.O. Box 279, 9490 Vaduz, Principality of Liechtenstein; Austrian Financial Market Authority (FMA), Otto-Wagner-Platz 5, 1090 Vienna, Austria.
Precautions for avoiding and dealing with conflicts of interest
Employees of LGT Capital Partners Ltd., Pfäffikon, LGT Bank Ltd., Vaduz, LGT Bank (Switzerland) Ltd. and LGT Bank AG, Zweigniederlassung Österreich, who are responsible for compiling and/or distributing financial analyses, are subject to the applicable regulations as prescribed by law and supervisory legislation. In particular, measures were taken to avoid conflicts of interest (e.g. checking information exchanged with other employees, independence of the remuneration of the employees concerned, preventing the exertion of influence on these employees, compliance with rules on employee transactions, etc.). In addition, the handling of financial analyses is governed by an internal, group-wide directive issued by LGT Group Foundation, Vaduz. Adherence to the regulations and organizational instructions is monitored by a Compliance Officer.
Reference regarding analysis history
If this analysis was made available to any issuers mentioned in the publication prior to its distribution or publication, no changes were made to the price or rating after the issuer’s feedback. Important references for Liechtenstein can be found in articles 3 to 6 FinMV [Financial Analysis Market Abuse Ordinance], for Switzerland in the Swiss Bankers Association Directives on the Independence of Financial Research, and for Austria in section 48 BörseG [Stock Exchange Act], the Austrian analysis principles of the Österreichische Vereinigung für Finanzanalyse und Asset Management [Austrian Association for Financial Analysis and Asset Management, ÖVFA] and the Austrian Society of Investment Professionals (ASIP) and the Standard Compliance Code of the Austrian banking sector. A history of all ratings and recommendations is available at your LGT relationship manager.
Essential sources of information
Our analysts draw on publicly accessible information we consider to be reliable. For the compilation of the analysis, publications by domestic and foreign media and news services (e.g. Reuters, Bloomberg, VWD etc.), business publications, trade publications, statistics and rating agencies were used, together with information from the issuers of the analyzed securities – mainly via the Internet, but also in writing or by telephone. We also procure information from investment banks (sell-side research and primary research).
Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
This publication does not constitute either an issuing or listing prospectus, nor any other kind of prospectus. This publication also does not constitute any offer for subscription or any other transaction or obligation.
Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
No guarantee is provided that the publications and information are up to date. Investment decisions should therefore always be made on the basis of the current prospectus and/or the complete documentation and publication of the third party/fund issuer (in particular the key investor information) and following consultation with an expert. This fund recommendation does not meet all the statutory requirements for guaranteeing the impartiality of financial research. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to this recommendation. It does not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments. LGT Bank (Switzerland) Ltd. and/or its affiliated companies are not subject to any prohibition of trading prior to the publication of financial research with regard to the recommended funds. The research can form the basis for the investment decisions of LGT Bank (Switzerland) Ltd. itself and/or those of its affiliated companies. It is possible that LGT Bank (Switzerland) Ltd. and/or its affiliated companies might receive retrocessions from the issuers of the funds dealt with here.
All selected third-party funds are subjected to a thorough quantitative and qualitative analysis process prior to inclusion in the LGT FundGuide. Selected third-party funds are also subject to a continuous monitoring process. Austria: Investment decisions should only be made on the basis of the current KIID and valid prospectus following consultation with an expert.
LGT funds: The current full prospectus, the Key Investor Information Document (KIID) and the current annual and semi-annual reports can be obtained free of charge from the fund administrator and from the following addresses: Liechtenstein: LGT Bank Ltd., Herrengasse 12, FL-9490 Vaduz and as an electronic version at www.lafv.li; representative for Switzerland: LGT Capital Partners Ltd., Schützenstrasse 6, CH-8808 Pfäffikon; main distributor and paying agent for Switzerland: LGT Bank (Switzerland) Ltd., Lange Gasse 15, CH-4002 Basel; paying agent in Austria: Erste Bank der österreichischen Sparkassen AG, Am Belvedere 1, A-1010 Vienna.
This recommendation was prepared by LGT and not by an independent financial analysis department. Therefore this recommendation does not meet all the statutory requirements for guaranteeing the impartiality of financial research. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to this recommendation. Investments in structured products entail a wide range of risks. Investment decisions should therefore only be made on the basis of the valid prospectus or complete documentation following consultation with an expert. This does not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments.
Information about foreign currencies were produced by LGT Bank (Switzerland) Ltd. and not by an independent financial analysis department. Therefore, forecasts, observations and price information are subject to change at any time and there is no guarantee that the information is complete. Investment decisions should accordingly be made in consideration of the investor’s personal risk tolerance and within the overall context of the portfolio. The Swiss Bankers Association Directives on the Independence of Financial Research do not apply to currency analysis. Such analyses do not constitute financial analysis within the meaning of the Liechtenstein Ordinance on the Preparation of Financial Analysis according to the Law against Market Abuse in the Trading of Financial Instruments.
To determine the LGT Sustainability Rating, the companies, countries and supranational organizations underlying the investment vehicles are assessed according to criteria defined by LGT with respect to the areas of environment (E), social issues (S) and corporate governance (G). Corporate and country-specific sustainability data (raw data) of external data providers feed into this rating. The LGT Sustainability Rating is a result based on criteria and calculation methods determined by LGT. It does not claim to be exhaustive, accurate or up to date. The LGT Sustainability Rating is not substantiated by LGT. Any liability of LGT is excluded. The LGT Sustainability Rating does not constitute advice, an offer, a solicitation or invitation to submit an offer; it is neither a basis for a decision nor a recommendation to buy or sell investment vehicles or other specific products, and does not constitute advertising for products or services. Advice from a qualified specialist before making an investment decision is recommended. Investments may be subject to fluctuations. A high LGT Sustainability Rating and a high ESG score do not guarantee a good or better performance of the investment vehicle or other products, in particular in comparison with an investment with a lower LGT Sustainability Rating. The LGT Sustainability Rating must be strictly separated from other analyses and assessments.
This investment proposal might contain US assets located in the USA (known as “US situs assets”) which might trigger US inheritance tax consequences. This means, for example, that the estate of the decedent neither domiciled in the USA nor with US citizenship might become liable for tax payment to the US tax authority. Subject to a ceiling, non-US persons may enjoy tax exemptions and reductions if they are entitled to benefit from a double taxation agreement (DTA) which provides for such relief. LGT recommends that clients consult a qualified tax advisor for further information on US inheritance tax and the associated reporting obligations and tax liabilities in the USA. LGT does not automatically report tax liabilities to the Internal Revenue Service (IRS), the US tax authority.
Where this publication has been distributed by LGT (Middle East) Ltd., related financial products or services are only available to professional investors as defined by the Dubai Financial Services Authority (DFSA). LGT (Middle East) Ltd. in the Dubai International Financial Centre (Registered No. 1308) is regulated by the DFSA. LGT (Middle East) Ltd. may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business: The Gate Building (West), Level 2, Dubai International Financial Centre, P.O. Box 506793, Dubai, United Arab Emirates.
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