This website uses cookies in order to improve user experience. If you close this box or continue browsing, we will assume that you are happy with this. For more information about the cookies we use or to find out how you can disable cookies, see our Cookies Notice.

Investment traffic lights

Our tactical and strategic view

Equities*

Equities*

  Regions 1 to 3 months until Sep 2017

United States

Europe

Europe (equities)

We expect the valuation spread between European and U.S. equities to remain at an elevated level, given the uncertainties in the European financial sector, upcoming elections and the unclear implications of Brexit. However, we have recently seen earnings revisions turning slightly positive in Europe.

Eurozone

Germany

Switzerland

United Kingdom (UK)

United Kingdom (equities)

So far,Brexit has proved less of a drag on the economy of the United Kingdom then initially thought, leading us towards a neutral stance for the overall British market. By causing the British pound to plunge, it is also cosmetically boosting the value of overseas earnings when reported in local currency. This has been particularly helpful for large, international companies.

Emerging Markets

Asia ex Japan

Japan

Japan (equities)

We are sticking to our overweight on Japan given long-term corporate-governance improvements. We however find it difficult to predict the implications of the next Japanese policy move and would rather focus on company fundamentals, which remain solid in our view. Strong balance sheets should more than offset the effects of weaker growth.

Latin America

Latin America (equities)

In emerging markets we see clear signs of macro stabilization and a cyclical recovery, some of which is commodity-price driven, prompting us to raise earnings estimates – in Latin America’s case to above consensus. We remain neutral overall, as the market has already strongly rebounded, and as the political challenges for example in Brazil remain high.

Sectors

Consumer staples

Healthcare

Telecommunications

Utilities

Consumer discretionary

Energy

Financials

Industrials

Information technology

Materials

Style

Small and mid cap

Fixed Income*

Fixed income**

  Rates 1 to 3 months up to Sep 2017

U.S. Treasuries (2-year)

U.S. Treasuries (10-year)

U.S. Treasuries (30-year)

UK Gilts (10-year)

UK Gilts (10-year)

Following the liquidity support by the Bank of England and the resulting fall in yield, we are downgrading Gilts to neutral. Going forward, a key question will be how strongly inflation picks up in 2017, due to the weaker pound; we are currently expecting 2.4%. Another wild card is the future path of fiscal policy.

Italy (10-year)

Spain (10-year)

Spanish government bonds (10-year)

We have recently moved towards neutral on Spanish government bonds. The strong performance in recent years was backed by the European Central Bank’s extraordinary measures. These are likely to continue, but the potential for spreads tightening further compared to Eurozone core countries looks increasingly limited. Spanish politics is unlikely to help either any time soon, as yet another election looms.

German Bunds (2-year)

German Bunds (10-year)

German Bunds (30-year)

Japanese government bonds (2-year)

Japanese government bonds (10-year)

Corporates

U.S. investment grade

U.S. high yield

Euro investment grade
1

Euro high yield
1

Euro high yield

We continue to see upside in euro high yield and stick to our positive view. Euro high yield are one of the few euro asset classes that still offer both meaningful, positive yield at valuations within historic norms. As a result, they should continue to benefit from a stable macro-economic background, paired with a favorable monetary environment. profitieren

Asia credit

Emerging-market credit

Securitized / specialties

Covered bonds
1

U.S. municipal bonds

U.S. mortgage-backed securities

Currencies

EUR vs. USD

USD vs. JPY

EUR vs. GBP

GBP vs. USD

GBP vs. USD

Longer term we still expect the British pound (GBP) to weaken as a result of the Brexit vote and the UK’s twin deficit. Tactically, however, we believe that GBP will trade sideways versus the U.S. dollar (USD) after the plunge it saw at the beginning of October. The U.S. election might weigh on the USD in the short term.

USD vs. CNY

Emerging markets

Emerging-market sovereigns

Alternatives*

Alternatives**

 

Infrastructure

Commodities

Real estate (listed)

Real estate (non-listed)

Hedge funds

Private Equity2

Comments regarding our tactical and strategic view

Tactical view:

  • The focus of our tactical view for fixed income is on trends in bond prices, not yields.

Strategic view:

  • The focus of our strategic view for sovereign bonds is on yields, not trends in bond prices.

  • For corporates and securitized/specialties bonds, the arrows depict the respective option-adjusted spread.

  • Both spread and yield trends influence the bond value. Investors who aim to profit only from spread trends must hedge against changing interest rates.

Legend

The tactical view (one to three months)

Equity indices:

  • positive view

  • neutral view

  • negative view

Fixed income and exchange rates:

  • The fixed-income sector or the exchange rate is expected to perform well

  • We expect to see a sideways trend

  • We anticipate a decline in prices in the fixed-income sector or in the exchange rate

  • A circled traffic light indicates that there is a commentary on the topic.

The traffic lights’ history is shown in the small graphs.

The strategic view up to June 2017

Equity indices, exchange rates and alternative investments:

The arrows signal whether we expect to see an upward trend ( ), a sideways trend ( ) or a downward trend ( ) for the particular equity index, exchange rate or alternative asset class.

Fixed income:

For sovereign bonds, denotes rising yields, unchanged yields and falling yields. For corporates, securitized /specialties and emerging-market bonds, the arrows depict the expected move of the option-adjusted spread over U.S. Treasuries, if not stated differently. depicts an expected widening of the spread, a sideways spread trend and a spread reduction.

The arrows’ colors illustrate the return opportunities for long-only investors.

  • positive return potential for long-only investors

  • limited return opportunity as well as downside risk

  • high downside risk for long-only investors

ref-1

*as of 9/27/16.

ref-3

1Spread over German Bunds

ref-3

2These traffic-light indicators are only meaningful for existing private-equity portfolios.

Related Articles

May 24, 2018 New Macro Outlook

Italy's new coalition

Italian political turmoil might prove less worrisome than many think.

May 24, 2018 New Equity

Americas CIO View

Oil near normal, Energy profits still below, but limited upside

May 18, 2018 New Chart of the week

Chart of the week

Even U.S. corporations fear the impact of Donald Trump's trade politics

May 17, 2018 CIO Special

Free trade under attack

Common misconceptions and lessons for investors

May 17, 2018 Macro Outlook

A Closer Look

U.S. fiscal prospects: daunting challenges

May 11, 2018 Chart of the week

Chart of the week

Slowly, but surely inflation expectations are creeping up

May 09, 2018

Americas CIO View

Neither higher wages, oil, nor federal funds rates threaten margins

May 04, 2018 Chart of the week

Chart of the week

Spain’s Eurozone journey: From growth leader to crisis and back to leader

May 03, 2018 Focus Topic

Rising interest rates

Will rates unrattle equity markets?

May 03, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

May 03, 2018 Audio

CIO View Podcast

Listen now!

Apr 30, 2018 Equity

Americas CIO View

Volatility: Be contrarian short-term, but respect it longer-term

Apr 27, 2018 Chart of the week

Chart of the week

U.S. bond yields leave German yields further behind. Is the dollar following suit?

Apr 24, 2018 Equity

Americas CIO View

Sizing up Banks and Tech

Apr 20, 2018 Chart of the week

Chart of the week

Global trade remains in excellent shape

Apr 17, 2018 Macro Outlook

As good as it gets?

So far, our upbeat base case for the global economy is looking good

Apr 17, 2018 Multi Asset

Managing volatility

The markets' increased volatility should be manageable.

Feedback

Please let us know what you think about this article/page.