Thomas Trauth, Blue Horizon Wealth Partner AG (Foto: Blue Horizon).
Zurich – The announcement by the US Fed on May 22 of a move towards less accommodative monetary policy, i.e. less bond buying later this year, has had a big impact on financial markets. Bond, equity and gold markets sold off. Not only did 10Y benchmark rates rise by 0.55 percentage points in the US, 0.45 in Switzerland, and 0.30 in Europe, in addition credit spreads widened.
Major equity markets lost between 3% in the US and 10% in emerging markets. We expect continued volatility and nervous trading, but we still see the best risk reward in equity markets. We continue to prefer US and Japanese equity over emerging markets and Europe. Gold and other commodities will remain under selling pressure, while oil could recover somewhat. The USD may turn out to be the major beneficiary of a less accommodative US central bank.
In this issue we will also highlight the recent developments in China. The country’s economic growth slowed down, and leading indicators suggest that there will be no meaningful acceleration any time soon. The Chinese Hang Seng equity index has fallen by almost 9% since January. In addition, the Chinese economy is currently undergoing structural changes, which are having a strong impact on global markets. It is noteworthy that MSCI, an important provider of financial market indices, announced on June 11 that it had downgraded Greece from the developed market index to the emerging markets index. This is the first time that a nation has been downgraded from developed-market to emerging-markets status. Greek bond spreads subsequently widened. Since many institutional investors have to follow MSCI indices when constructing portfolios, there will be shifts in demand. However, the overall effect on demand for Greek stocks and bonds remains unclear, since Greece’s weight in the emerging markets index will attract demand from emerging markets investors.
Wave of political protest
We currently observe a new wave of political protest in a number of different regions, including Brazil, Turkey, Egypt, Bulgaria, Greece, Indonesia and some Arab countries. The reasons for the protests vary widely, but all manifest discontent with the political and/or economic situations. It is remarkable how rapidly the protests seem to spread, in part as a result of efficient social media communication. In addition, the protestors are often a highly heterogeneous group rather than belonging to specific sections of the population. We think it is very important to keep track of these developments. In 1989 such protests led to the fall of the Soviet regime and the tearing down of the Berlin wall. At the time of writing, Egypt’s military have ousted President Mursi and paved the way for new elections. (BH/mc/hfu)
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