Declining growth and China's surprise

The monthly CIO update analyzes the current market environment and presents the backstories. Presenters are Michaela Huber, Investment Strategist, and Christopher Koslowski, Senior Fixed Income & FX Strategist.

More emerging markets, less Switzerland

In 2022, the US Fed hiked interest rates significantly and the effects are now starting to be felt in the real economy. Growth is slowing and leading indicators suggest that there may even be more downside potential. A recession is still a very real possibility.

Still, the year did begin with some positive news. China surprised the markets with the sudden reopening of its economy. It has also relaxed its stance on leading tech companies and agreed to lend a helping hand to the struggling real estate sector. A further positive note is the ongoing decline in inflation, especially in the United States.

China’s improved growth prospects and our expectation of a weaker US dollar have prompted us to upgrade emerging markets equities from underweight to neutral. Swiss equities have been reduced from overweight to neutral.

We maintain our overweight in gold. It faced a range of headwinds last year, as the Fed’s aggressive fight against inflation strengthened the US dollar and lowered inflation expectations. The prospect of a less restrictive monetary policy going forward should bode well for the yellow metal, we believe.

Apart from that, we are leaving our portfolio unchanged and remain slightly overweight in equities, neutral for fixed income and alternative investments, and underweight on cash.