LGT Private Banking House View

June 2024 - in a nutshell

In our investment strategy, we highlight tail risks, which are distruptive events for financial markets, but also create investment opportunities and are closing the tactical "Underweight" position in US equities, as the US market remains in a difficult tug-of-war between economic momentum and interest rate cut fantasies. The timing seems ideal to make portfolios more crisis-resistant by increasing average credit quality, which is currently possible with minimal yield sacrifice.

Gérald Moser, CIO & Head Investment Services Europe
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7 minutes
HouseView June 2024
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Macroeconomic environment

Both the US and the euro area are experiencing below-average growth, but are clearly defying earlier fears of recession. Both growth and inflation risks have recently declined significantly, despite restrictive monetary policies and geopolitical uncertainties dampening growth prospects. Recent developments indicate a continued normalisation of the global economy in terms of growth and inflation, yet the resilience of market sentiment towards high interest rates and low growth remains doubtful.

Investment strategy

Tail risks are events which are disruptive for financial markets, but they also create investment opportunities. Since the beginning of the year, financial markets have been contending with two large tail risks: sticky inflation and recession fears. While our view is that risks are receding, we feel that inflation preoccupies markets more than economic growth. In that case, bonds might still not act as a proper diversifier in a portfolio as a shock might send interest rates and yields higher again. In that scenario, having some volatility exposure might not be a bad idea, especially considering how cheap it is now. 

Equity strategy

We are closing the tactical underweight position in US equities, as it remains in a difficult tug of war between economic momentum and interest rate cut fantasies. At the same time, the corporate reporting season for the first quarter appears to confirm a sustained earnings recovery. Regionally, however, the US equity market was at the bottom end of the league table over the past three months. This was led by Chinese stocks. We reiterate our view that the risk/reward potential of the Chinese equity market remains attractive for risk-tolerant investors. In our sector strategy, we are taking profits in mining companies (including gold miners), utilities and banks. While structural factors speak in favour of commodities and their producers in the longer term, the significant price gains of recent months may be overdone in the short term. We therefore suggest locking in some of these profits.

Fixed-income strategy

Since the US regional banking crisis in the spring of 2023, credit spreads have fallen steadily across the board, especially for high quality US corporate bonds, whose spreads over government bonds are close to historic lows. The timing therefore seems ideal to make portfolios more crisis-resistant by increasing average credit quality, which is currently possible with minimal yield sacrifice.

Currency strategy

The Swiss franc has shown remarkable resilience, supported by a strong economic environment and political stability in Switzerland. The country’s fundamentals remain solid and the Swiss National Bank has taken measures in the past to control volatility in the Swiss currency. In summary, we expect the Swiss franc to appreciate against the US dollar in the coming months, with Switzerland remaining an attractive investment destination and thus, the Swiss franc a solid currency.

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