markets and opinions...2020/06/30 · the prices of most commodities have been hit by the economic...

Markets and opinions July 2020

July 20

2020 mid-year review

| Colin&Cie. — Unique Wealth Management | 03/07/2020

| Colin&Cie. — Unique Wealth Management | 03/07/2020 | Source: Refinitiv Datastream, Colin&Cie. in euro

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Bonds have almost fully recovered from their losses of around 5%-17% in March

In our last publication, we highlighted the upside potential of high-yield bonds.

As expected, this asset class benefited from the general easing of the situation.

Similarly, corporate bonds have also recovered from their lows.



After losses of around 20%-40% in March, equities have recovered to varying degrees depending on the market

Thanks to the enormous stimulus packages launched by governments and central banks, most equity markets recovered surprisingly quickly and significantly from the massive setbacks in the first quarter.

Defensive stock indices, such as the Swiss stock market, generate added value during downward trends.

On the other hand, such indices tend to benefit less from the market upswing during the recovery phase.

All in all, the Swiss market is currently the best performing in Europe.



The gold price benefited from the crisis, especially in the second quarter

Commodities are cyclical goods whose price performance is highly dependent on the economic cycle.

The prices of most commodities have been hit by the economic downturn.

Initially, this was also true for gold, but then the gold price stabilised as investors sought to safeguard themselves against the crisis.

The private equity and real estate prices shown here are those of listed companies active in these areas.

What are the factors driving this recovery?


| Colin&Cie. — Unique Wealth Management | 03/07/2020 | Source: Refinitiv Datastream, Colin&Cie.


Rationale

An expansionary monetary policy has a positive effect on the economy and financial markets.

In response to the coronavirus crisis, central banks have reacted in an expansionary fashion.

Explanation

Central banks in the US and Europe are intervening to support the economy by expanding their balance sheets.

Monetary policy measures have stabilised financial marketsCentral bank balance sheets (ECB and FED)

Assessment

Very positive



Fiscal policy measures have stabilised the economyGlobal stimulus programmes

Rationale

Strong increases in government stimulus programmes are expected globally.

Governments in Europe (+6.8% in 2020) are providing less stimulus than the US (+9.6%).

Explanation

International Monetary Fund (IMF) expectations of fiscal stimulus programmes.

Assessment

Very positive

What are the risks associated with the current monetary and fiscal policy trends?




At a global level, the increase in debt has been less pronounced than is widely believed

Rationale

Only a slight increase in global debt levels since the 2009 financial crisis.

The slight increase in corporate and government debt is offset by a reduction in the debt levels of private households.

Explanation

Total debt divided by public and private sector.

The private sector can be further subdivided into companies and households.

Assessment

Neutral/positive



Thanks to low interest rates, interest payments on government debt are lower than they have been for 50 years

Rationale

Falling interest rates have significantly reduced the interest payments of governments.

Explanation

Interest payments of OECD countries as a share of economic output.

Assessment

Neutral/positive



Inflation expectations are also significantly lower than is widely believed

Rationale

Bond investors do not expect a sharp rise in inflation in the years to come.

Current inflation expectations are still a long way from central banks' official targets.

Explanation

Inflation expectations for the next 5, 10 and 20 years based on bond market data.

Assessment

Neutral/positive

How will financial markets and the economy at large perform?




The coronavirus pandemic will continue to have a strong impact on the economy and financial markets

Rationale

In Europe, the rate of new infections is declining.

In the US, the rate of new infections remains high and is even increasing again.

Explanation

The spread of the coronavirus in the US will be decisive for the performance of global financial markets.

Assessment

Cautious



While monetary and fiscal policy measures are having the desired effect, the risks of a second wave cannot be ruled out

There are two possible scenarios on how the coronavirus situation might evolve:

The negative scenario would see a renewed increase in the number of infections and a second wave of the virus.

In the positive scenario, the situation will be kept under control and at most there will be local infection hotspots.

In the positive scenario, the effectiveness of the stimulus measures will be the decisive factor that would lead investors to change their behaviour.

If the measures fail to achieve their intended effect, the economic recovery will be slow.

Second wave(40% to 50%)

Scenario(probability; 50% = neutral)

Detailed description Investor behaviour Equity markets(from 15 June)

A sharp increase in the global rate of new infections

Renewed restrictions (on movement)

Deep recession

Ongoing weakgrowth(55% to 60%)

The stimulus outweighs therisks(60% to 70%)

The number of infections remains under control

Minor restrictions (on movement)

Slight recession in 2020 Sluggish economic recovery

Market panic All asset classes affected Safe investments are most likely

to benefit

High level of uncertainty Strong price fluctuations Preference for growth stocks Bonds benefit from low interest

rates

Higher risk appetite Asset class rotations Heavily affected shares will

make a comeback Market bubbles and irrational

behaviour

>-40%

Economic growth

-4% to

-6%

0%0% to

-2%

>10%0% to

2%



The situation continues to be volatile, but economic indicators are recovering. Our outlook for 2021 is optimistic.

Rationale

Most countries' PMI indices are still below the 50 point threshold that is critical for growth.

However, they have already bottomed out.

Explanation

Purchasing managers' indices (PMI): monthly indicators of economic growth

50 points or more indicates economic growth

Levels below 50 points indicate a contraction

Assessment

Cautious



Corporate profits have collapsed worldwide, most severely in Europe

Rationale

Negative earnings growth.

Earnings forecasts are stabilising.

Stabilisation at very low levels.

Explanation

Trend analysis of expected earnings growth.

Annual growth forecast (top) compared with the global index (bottom).

Assessment

Cautious



Thanks to the price gains in the second quarter, stock market valuations have risen sharply

Rationale

Historically, stock valuations are above average.

They are currently at a 15-year high.

Explanation

10-year comparison of stock valuations, with average and standard deviation.

Extreme variations compared to historical averages indicate a positive or negative impact.

Expected gains (top) and actual turnover (bottom).

Assessment

Negative

All strategic and long-term trends, with the exception of commodities, remain unchanged.




Bonds: strategic trends remain unchangedLong-term trend channel: global bond index

Rationale

Slight deviation from the trend line.

Between the trend line and the lower end of the simple standard deviation.

Explanation

The bond index follows a long-term trend channel and deviates to varying degrees from average market developments.

Total returns in local currency.

Assessment

Neutral/positive

Deviation from the trend line



Equities: strategic trend remains unchangedLong-term trend channel for global equities

Rationale

Market developments are within the long-term trend.

The coronavirus crisis of the first quarter has not changed our assessment of the trend channel.

Explanation

Equity indices follow long-term trend channels and deviate to varying degrees from average market developments.

Assessment

Neutral/positive




Commodities: strategic trends no longer intactLong-term trend channel for commodities

Rationale

Sharp deviation from the trend line, by more than twice the level of the standard deviation.

Weak average annual growth of just over 1%.

Unattractive in the current market environment.

Explanation

The commodity index (the Bloomberg Commodity Index) follows a trend channel.

Commodities include energy commodities, precious and industrial metals and agricultural goods.

Assessment

Cautious




Gold: strategic trend remains unchangedLong-term trend channel for gold

Rationale

Very close to the long-term trend line.

Average annual growth of around 5%.

Explanation

The gold price follows a long-term trend channel and deviates to varying degrees from average market developments.

Assessment

Neutral/positive


Summary and conclusion




Evaluation and analysisOverview including new ratings

Asset class Evaluation TAA

- o +

Analysis

Equities Cautious Partners�Macro Trend Valuation

Europe Cautious Partners Macro Trend Valuation

USA Neut./pos. PartnersMacro Trend Valuation

Emerging markets Neut./pos. Partners Macro Trend Valuation

Technology Neut./pos. PartnersMacro Trend Valuation

Healthcare Neut./pos. PartnersMacro Trend Valuation

Precious metals/ Comm.

Gold Neut./pos. PartnersTrend Valuation Technical

Commodities Cautious PartnersTrend Technical

AnalystsMonet. policy Earnings Sentiment






AnalystsUS dollar Sentiment News

AnalystsUS dollar Sentiment News

Technical

Technical

Technical

Technical

Technical

Technical

Macro

Macro

News

News

News

News

News

News

Monet. policy

Monet. policy

Neut./pos.Cautious V. positiveNegativeLegend: Upgrade Downgrade

Liquidity

Bonds Neut./pos. Macro Trend Valuation Technical

Government bonds Cautious Macro Trend Valuation Technical

Investment grade Neut./pos. Macro Trend Valuation Technical

High-yield Neut./pos. Macro Trend Valuation Technical

Emerging markets Neut./pos. Macro Trend Valuation Technical

Monet. policy Yields Sentiment News





Partners

Partners

Partners

Partners

Partners

Analysts

Analysts

Analysts

Analysts

Analysts

Alternative investments Neut./pos. Partners

Private debt Neut./pos. PartnersMacro Trend Volume

Private equity Neut./pos. PartnersMacro Trend Volume

Diversified (HF) Cautious PartnersMacro Trend

Analysts

AnalystsSentiment Leverage Sentiment

AnalystsSentiment Leverage Sentiment

AnalystsSentiment Sentiment

Technical

Technical

Technical

News

News

News



Evaluation and analysisSummary

The large-scale countermeasures taken by central banks and governments have largely offset the negative impact of the global coronavirus lockdowns on financial markets.

Widespread concerns about excessive debt levels are currently unfounded, especially since payment burdens are at historically low levels owing to low interest rates, and neither is there currently any sign of a rise in inflation.

All asset classes have already recovered from their lows earlier this year and year-to-date losses have also been reduced.

With the exception of commodities, all strategic and long-term trends remain unchanged.

There are signs that the economy is bottoming out, but the situation remains tense. How much additional stimulus will still be needed depends on the further course of the coronavirus pandemic. The level of uncertainty thus remains high.

The recovery in share prices has reduced the potential yields of bonds. Nevertheless, this segment will continue to contribute to the stability of our portfolio, especially during volatile market phases.

As regards equities, we remain cautious for the time being and expect strong price fluctuations due to the persistently high level of uncertainty. Given the prevailing level of uncertainty, the extremely ambitious equity valuations are a warning sign.

During the difficult phase of the pandemic, precious metals/gold and alternative investments demonstrated their positive, stabilising effect. Increasing our exposure to these asset classes at the end of last year has therefore paid off.

Our broad investment spectrum is marked by a high degree of diversification, which contributes to stability in difficult market phases.

Legal notice

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Phone +352 272 135 205Fax +352 272 135 [email protected]

Contact person:

Joachim ErdmannManaging Partner

Bernd KlingbeilManaging Partner

Zurich

Gerbergasse 58001 ZurichSwitzerland

Phone +41 58 218 85 55Fax +41 58 218 85 [email protected]

Contact person:

Walter ArnoldManaging Partner

Marcel SchällebaumManaging Partner

Schaffhausen

Vordergasse 768200 SchaffhausenSwitzerland


Contact person:

Peter StrohmManaging Partner

Lugano

Via F. Pelli 13A6900 LuganoSwitzerland


Contact person:

Leendert van Hoeken Managing Partner

Zug

Rigistrasse 36300 ZugSwitzerland


Contact person:

Thomas WarneckeManaging Partner

About Colin&Cie. Wealth ManagementOur offices and contact details

MARKETS AND OPINIONS / FIRST QUARTER 2020 / IMPRINT


This publication was prepared und published by Colin&Cie. Investment Office. The information and views contained in this document are obtained from sources that are believed to be reliable. Nevertheless, we cannot guarantee the reliability, completeness or correctness of these sources. All information as well as any prices indicated are current as of the date of thisreport, and are subject to change without notice. The content is based on numerous assumptions made within the Colin&Cie. Group. It must be taken into account that different assumptions can lead to materially different results. The forecasts and assessments are only current only as of the date of this publication and may change without notice. Past performance of an investment is not guarantee for its future performance. Some investments may be subject to sudden and significant fall in value.

This information and view is not intended as a solicitation, an offer or a recommendation to purchase or sell investment instruments or to conduct other transactions. We recommend investors to get in contact with their personal advisor before making any decisions based on this document. This in order to ensure that personal investment objectives, financial situation, individual needs and risk profile as well as further information can be duly taken into account in the context of comprehensive advice. The information contained in this publication is marketing material that is distributed exclusively for advertising purposes.

Responsible for the content:Colin&Cie. AGInvestment OfficeRigistrasse 36300 Zug

Author:Beat [email protected]

Disclaimer

MARKETS AND OPINIONS / FIRST QUARTER 2020 / IMPRINT


markets and opinions...2020/06/30 · the prices of most commodities have been hit by the economic...

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