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LGT Asset Allocation – February 2020

January 29, 2020

Economic data have continued to stabilize in recent weeks and even improved in some cases. Similarly, the signing of the "phase-one deal" between the US and China was a first important step towards de-escalation in the trade conflict between the two largest economies in the world. Now, however, the fear – or rather the currently incalculable consequences – of the novel coronavirus have dampened investor sentiment, at least in the short term.

Asset Allocation LGT Private Banking Europe

The novel coronavirus puts pressure on market sentiment

The extent to which the dampening of investor sentiment is effective and the extent to which it could affect global growth can at best only be guessed at present. However, it is a fact that uncertainty has increased sharply in recent days, partly due to media speculation. If the coronavirus – similar to the SARS virus – does not have a lasting and serious impact on global growth, the uncertainty is likely to be of only a short-term nature.

Against the backdrop of this changed temporary outlook and the upcoming US primary elections, the Investment Committee of LGT Private Banking Europe has decided to remove risks from the portfolio and reduce the equity exposure from overweight to a neutral quota. We are using the – also due to seasonality – strong past three months to realize gains. Within the equities quota, Europe remains tactically overweight. Asia-ex-Japan is now underweighted against the strategic asset allocation. Liquidity is now overweighted and gives us greater flexibility in the mandates in the coming months. Gold remains overweight as a “safe haven” in this uncertain phase.

Equities: between review and outlook

Although we are in the middle of the earnings season for the fourth quarter of 2019, we can already draw a first conclusion. On Wall Street, the management of expectations is often more important than actual profits, which also seems to be the case in the current reporting period. Expectations were scaled down in advance to such an extent that the now low hurdles were surpassed. This time, however, the procedure was overshadowed by a blemish, as fewer companies were able to exceed the lowered bar.

On a positive note, the outlook for 2020 remains constructive for most companies. At 5-6%, earnings in the current year should be better than in 2019, but certainly lower than the current estimates of Wall Street analysts. Selection will therefore continue to be the focus of attention. Due to the increased uncertainty triggered by the coronavirus, we have now underweighted the Asia-ex-Japan region and aim to achieve greater visibility before increasing the equity weighting in this market again. In the USA we have increased our value share in order to temporarily make the portfolio more defensive.

Fixed Income: the flight into government bonds is likely to be only temporary

The uncertainty on the capital markets has led to a flight to government bonds. The yield on ten-year US government bonds, for example, is once again close to 1.6%. A similar situation can be observed in the euro zone, where investors receive less than 1.2% for a ten-year Greek government bond.

We remain true to our positioning and see little risk-adjusted potential in developed world government bonds. The returns that can be achieved are simply too low for the risk taken. The overweight in corporate bonds at the expense of high-yield bonds remains. We also see potential in emerging market bonds in hard currencies, although we would wait with an increase until the visibility with regard to the coronavirus has increased.

Alternative investments: Gold solid as a rock

In an increasingly complex and interconnected world, effective portfolio diversifiers are becoming increasingly rare. Gold is and will remain one of these investment vehicles, which generally work very well in cases of increased investor uncertainty. However, this is not the only reason why the yellow precious metal is at the top of our asset allocation list at the moment. With a negative real interest rate and a possible weakening of the greenback, there are further reasons why the rally in gold should continue in the medium to long term.

What we like What we dislike

Equities

NEW: US value stocks

European equities

Healthcare

Dividend stocks

NEW: Asia ex-Japan

"Value traps"

Fixed Income

Short-term US Treasuries

Investment grade bonds

Swiss government bonds

EU government bonds

High-yield bonds

Long duration

Alternatives

Gold

Listed Private Equity

 

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email: thomas.wille@lgt.com
Editor: Natija Dolic, E-Mail: natija.dolic@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.

Impressum
Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
Konsumentenpreise (J/J)
MEZLandIndikatorAktuell09:15ESMarkit PMI52.109:45ITMarkit PMI50.109:50FRMarkit PMI51.709:55DEMarkit PMI51.410:00EUMarkit PMI51.510:30GBMarkit/CIPS PMI49.710:30EUSentix: Investorenvertrauen-5.815:45USMarkit PMI51.616:00USISM PMI: Dienstleistungen55.1