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LGT Asset Allocation – October 2019

October 2, 2019

Our main scenario remains a “buy the dip” strategy. We keep a neutral risk positioning and buy cheap tail risk protection. For equities the company outlooks represent an important mood factor for the rest of the calendar year. In the traditional bond sector the search for a risk-adjusted return in investment remains a challenge for investors.

Asset Allocation

Capital markets under the spell of bipolar political tensions

At the beginning of the fourth quarter of 2019, too, we find ourselves in various bipolar areas of tension, which quickly cause the mood of market participants to tilt in one direction or the other. These are areas of tension such as Brexit or the trade conflict between the USA and China, which could entail a risk of a “binary” outcome for the markets that should not be underestimated. The economic figures continue to show a rather fragile picture. A further escalation could cause consumers, especially in the USA, to stop spending, which in turn could lead to a sharp economic slowdown or even a recession. A relaxation or solution of the tensions would give companies an important signal of confidence. This shows how easily investor sentiment can change. It also plays a key role against the backdrop of the US presidential elections in 2020: the state of the US economy has always been the most important factor in citizens' decision-making. We do not expect this to change in the coming election year.

At asset allocation level, we remain constructive and think it is too early to reduce risks at portfolio level. The excellent year-to-date performance for equities is over 15% and the S&P 500 had its strongest performance in the first three quarters of the year since 1997. This has also led us to hedge some of these gains in an annual context via a hedging strategy. In all investment profiles, we buy a tail risk hedge for half of the US equity exposure. Our main scenario remains a “buy the dip” strategy and we will continue to pursue it consistently should opportunities arise in the coming weeks or months.

Equities: the outlook as an important mood factor for the rest of the calendar year

The companies' results for the third quarter of 2019 are just around the corner. In recent weeks the expectations of market participants have been revised downwards, in some cases massively. The reason is a weaker global economic growth with the risk of a further slowdown due to the trade war between the USA and China. Therefore, the focus will be less on the data for the past quarter than on the outlook for companies in the coming quarters. In the USA, the first decline in profits in more than three years is even expected, which can in part be explained by an exceptionally strong comparative period in the previous year, which was boosted by the tax reform of the Trump administration.

Companies are not expected to make any major leaps forward in the coming quarter. However, we believe that the expectation of around 10% profit growth for the coming year is (too) ambitious if there were no short-term agreement between the conflicting parties. By historical standards, October remains a very volatile month. We would therefore buy quality stocks with attractive dividend yields and a high-margin business model during periods of weakness.

Fixed income: the search for a risk-adjusted return on investment remains a challenge

Although a slight countermove in the traditional bond sector has been observed in recent weeks (slightly rising interest rates), the search for a positive, risk-adjusted yield on government bonds in the euro zone remains a challenge for investors. The situation is unlikely to improve, as the European Central Bank (ECB) will once again begin its quantitative easing program. The ECB will buy EUR 20bn worth of bonds every month. On the other side of the Atlantic, the US Fed has announced further interest rate cuts. Market participants expect interest rates to be lowered this year, and two more times next year.

We therefore expect further support from the central banks in the coming months in order to provide the markets and the economy with sufficient stimuli. We thus continue to favor corporate bonds with solid borrower quality in the fourth quarter of 2019. For risk tolerant investors, the credit risk premium for subordinated corporate bonds remains the focus, with selection continuing to be of crucial importance. In terms of emerging market bonds, we prefer hard currency bonds to local currency bonds.

Alternative investments: the interest rate differential and the economic slowdown as support factors for the Greenback

According to economic theory, a net new debt of over 4% in 2019 and an enormous current account deficit hardly argue for the USA with the US dollar as lead currency, as the long-term effects of such a dual deficit are too detrimental. In the short term, however, the situation looks completely different. By historical standards, the US dollar always tends to weaken if global economic growth accelerates and the relative growth rates in the emerging markets exceed those of the US. Conversely, the Greenback tends to be strong if growth slows down. This correlation still works quite well today, despite massive intervention by the Federal Reserve.

A second support factor remains the yield advantage between the US yield curve and that of Germany as a benchmark for the euro zone. As long as this is above 200 basis points and investors receive a higher yield on ten-year US government bonds than, for example, on ten-year Greek bonds, a possible weakening of the global reserve currency will be limited.

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German stock index (DAX)



Fixed Income

Short-term US Treasuries

Investment grade bonds

Swiss government bonds

EU government bonds

High-yield bonds



Insurance-linked bonds

Hedge funds

Listed Private Equity



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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: David Wolf, +41 44 250 83 48, 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