▶ Where do we stand:
– Strained international relations and US elections could bring volatility and uncertainty
– Significant rate cuts are now priced in western countries
– Despite some tensions at the beginning of August, current financial markets volatility is back to low levels both in spread products and stock markets
▶ Major conviction:
– Continuing reassuring inflation figures and major central bank rate cuts, and
– No recession or hard landing: global economy is normalizing and companies are delivering earnings and managing their balance sheet
▶ Positioning: ahead of the US elections and with a lot of rate cuts priced in the markets, selectivity should prevail
– The recent rally seen in sovereign yields leaves little room for further downward pressure on yields, making long-dated government bonds unattractive
– With rate cuts on the agenda and growth slowing, the situation remains favorable for credit market carry strategies :
i/ Thanks to a an attractive risk-reward, favor quality credit in the US over High Yield, although the tightening in credit spreads has considerably reduced the margin for safety, and
ii/ More value in capital structure than in High Yield in Europe (below BB, too expensive)
– Despite tight spreads, reducing the margin of safety, EM debt offers favorable yield pick-up versus US peers on quality names on both Local and Hard currencies
– US elections could induce uncertainties short-term. Nevertheless, global monetary easing, resilient economic growth and decent corporate margins are supportive for global equities:
i/ Rotation in US stocks would favor Small caps and Value stocks when looking at valuation, and
ii/ European stocks are attractively value and compensate political risk. Switzerland remains a defensive market.
iii/ Emerging Markets are attractively valued and are benefitting from better economic outlook than most of the developed countries
– Hold a strategic Gold exposure in portfolios for diversification purposes as geopolitical risk remains
