Finan­cial markets in upheaval: signi­fi­cant shifts beneath the surface

Economy picks up

In the first few weeks of the year, the media discourse was dominated almost exclu­si­vely by geopo­li­tical tensions. The actual economic event almost faded into the background: global economic momentum is gaining noticeable momentum. It is being driven by struc­tural forces that we have been discus­sing for some time: high global govern­ment spending, a broad-based invest­ment cycle and incre­a­singly tangible produc­ti­vity gains through the use of artifi­cial intel­li­gence.

The awake­ning of industry is parti­cu­larly pleasing. After three years of reces­sion, the global manufac­tu­ring industry is retur­ning to expan­sion mode.

For compa­nies, this means incre­a­singly broad-based earnings growth, which provides a solid founda­tion for rising stock markets over the remainder of the year.

Stock rotation in full swing

This change in growth momentum is not without conse­quences on the markets. We have been obser­ving a prono­unced rotation in equities for several months now. Small & mid caps, emerging markets and the cyclical sectors of industry, energy and basic materials are showing clear relative strength and have clearly outper­formed the global equity index.

Despite this develo­p­ment, valua­tion discounts remain considerable. At the same time, these market segments remain under­re­pre­sented in many global portfo­lios. Both of these factors point to further catch-up poten­tial, parti­cu­larly in an environ­ment in which growth is more broadly based again.

Oppor­tu­ni­ties are also opening up in the techno­logy sector. The recent sell-off in software stocks allows investors who are under­in­ve­sted in this sector to selec­tively build up positions. Global market leaders such as Micro­soft and SAP as well as the strate­gi­cally important cyber­se­cu­rity sector appear attrac­tive.

Targeted portfolio adjust­ments

A changing world requires not only active stock selec­tion, but also a rethink of asset alloca­tion. For decades, the classic portfolio of equities and bonds worked reliably: Bonds cushioned reces­sions, equities ensured real asset growth. However, the frame­work condi­tions have shifted. A protec­tionist trade policy, the commo­dity-inten­sive restruc­tu­ring of infras­truc­ture and escala­ting govern­ment debt world­wide are funda­men­tally changing the risk landscape. The dominant portfolio risk today is no longer defla­tio­nary shocks, but recur­ring bouts of infla­tion and a creeping devalua­tion of money.

The protec­tive function of bonds is diminis­hing in this context, especi­ally when you consider the modest yield levels. The search for alter­na­tives is challen­ging, but not hopeless. We are focusing on gold, selected crypto­cur­ren­cies, private infras­truc­ture invest­ments and commo­dity-related equities. This positio­ning is flanked by a high propor­tion of Swiss francs and targeted partial hedging of the US dollar risk.

In the face of global upheaval, we see adapta­bi­lity and foresight as crucial ingre­di­ents in ensuring the resili­ence of our portfo­lios and conti­nuing our impres­sive track record.

Publisher: Tareno AG, Garten­strasse 56, 4052 Basel, Tel. +41 61 282 28 00, info@​tareno.​ch, www.tareno.ch. We welcome feedback on our publi­ca­tion. This content is for infor­ma­tion purposes only. The publi­ca­tion contains neither legal nor invest­ment advice or invest­ment recom­men­da­tions and does not consti­tute an offer or solici­ta­tion to make an invest­ment.

Images / graphics: The graphics were produced by Tareno AG from public market data.