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LGT Asset Allocation – June 2020

May 27, 2020

In the current market environment, the monetary and fiscal stimulus is in the focus of attention rather than the weak economic data. In terms of company figures, the current year is already being written off and hopes are pinned on 2021. Gold and cash remain an overweight at the expense of fixed income.

Asset Allocation LGT Private Banking Europe

Massive stimulus not only lifts market sentiment, but also assets

The massive stimulus provided by governments and central banks seems unlikely to abate as also France and Germany recently propagated a recovery fund of EUR 500 bn. Amounts of this magnitude are a novelty at European level. Whether and in what form the plan can be implemented is still unknown, but it is clear that a package of this magnitude is likely to materialize. In the US, too, work is underway on a further stimulus package – both governing parties want to get themselves in position for the pre-election campaign. It is therefore hardly surprising that fundamental data are receding to the background and even urgent issues are not currently attracting much interest. It remains open for discussion whether the debt is at all sustainable in relation to economic performance or who will pay this enormous bill in the future. The unprecedented liquidity injections in recent weeks have not only improved market sentiment, but have also had a positive impact on assets.

LGT's Private Banking Europe Investment Committee stands by its constructive assessment of the markets. We continue to favour gold and liquidity over bonds. In case of equities, we maintain our neutral assessment for the time being, but are reducing Europe to neutral in favor of Asia ex-Japan. We believe that the region should recover more quickly from the consequences of the Covid-19 pandemic and that the recovery is already more advanced than in Europe. In terms of sectors, we continue to favour healthcare on fundamental grounds and expect headwinds in the real estate sector in the short term.

Equities: The market is already writing off 2020 – hopes rest on a recovery next year

The earnings season for the first quarter of 2020 is barely over and there is little improvement in sight in absolute terms for the coming months. Thus, the focus is already on 2021, hoping that many companies will be able to return relatively quickly and seamlessly to the period before the Covid-19 crisis in the coming year. Valuations are above the historical average for most key figures and are generally in the top quartile compared to the last twenty years. For the time being, we believe that it is a little premature to write off the year 2020 already, as it will definitely pose further risks. Various companies will continue to refer to the corona pandemic in the coming quarters in case earnings are disappointing for market participants – even if the problems may be of a different nature. For this reason, stockpicking of quality stocks will continue to be key. The current positioning of many investors could boost stock markets: Despite a substantial recovery following the sharp price declines in the first quarter of 2020, exposure to risk securities such as equities remains low, and the investment crisis of many pension funds could become acute in the second half of the year.

Bonds: Corporate bonds continue to offer the most attractive risk-return profile

Based on yield considerations, we classify most government bonds of developed countries as unattractive. The interest rate is too low due to the monetary policy easing by the European Central Bank (ECB) and the US Federal Reserve (Fed). Due to central bank policy the short end of the yield curve should remain at zero or in negative territory on both sides of the Atlantic for the next few quarters. Selectively, corporate bonds remain our favourite in the fixed-income area due to their attractive risk-return profile. Although the high-yield segment offers attractive spreads, in the current economic environment they are subject to disproportionately high risks. Emerging market bonds are also subject to increased risk for the time being, as they would suffer from a possible flare-up in the trade war and the central banks there, in contrast to the US Federal Reserve and the ECB, only have limited options. Macroeconomic data must first improve before we would make new commitments to this asset class.

Alternative investments: Fundamental data continue to support gold, but headwinds due to positioning

Gold was already high up on our buying list long before the corona crisis. The precious metal is not only advisable as a portfolio diversification and effective risk hedge against a rapid rise in volatility on the global stock markets, but also as a protection against escalating central bank experiments. This attitude has not changed, and the low or even negative real interest rate level continues to support our positive medium to long-term. In the short-term, however, the current market positioning – many market participants are already overweight in gold – is providing headwinds. We therefore recommend betting on setbacks, or using derivative instruments for a more attractive market entry.

What we like What we dislike


US value stocks

Asia ex-Japan


Dividend stocks

European equities

"Value traps"

Fixed Income

Short-term US Treasuries

Investment grade bonds

Swiss government bonds

EU government bonds

Long duration





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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email:
Editor: Tina Haldner, E-Mail:
Source: LGT Bank (Switzerland) Ltd.

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Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail:
Quelle: LGT Bank (Schweiz) AG
Konsumentenpreise (J/J)
MEZLandIndikatorAktuell09:15ESMarkit PMI52.109:45ITMarkit PMI50.109:50FRMarkit PMI51.709:55DEMarkit PMI51.410:00EUMarkit PMI51.510:30GBMarkit/CIPS PMI49.710:30EUSentix: Investorenvertrauen-5.815:45USMarkit PMI51.616:00USISM PMI: Dienstleistungen55.1