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LGT Private Banking House View – July 2020

July 1, 2020

Despite signs of a sustained macroeconomic upturn, the recovery is likely to be slow. The central banks will most probably continue to support the markets with massive stimulus in the second half of the year. We maintain our neutral risk positioning, with a clear focus on selection in all asset classes.

Asset Allocation LGT Private Banking Europe

Ongoing macroeconomic recovery

The economic data of the G10 nations are continuously improving and in recent weeks most of them have even clearly exceeded market expectations. This can be seen very clearly looking at the G10 Surprise Index, which measures the deviations from expectations and is now back to pre-Covid-19 levels. Leading indicators in the developed countries and China also continued to improve steadily in June. However, the speed of this recovery remains a downer. It will probably take us until the end of 2021 to reach pre-pandemic levels and it will be a bumpy road. The recovery is likely to be hampered several times in the coming months by resurgent or locally rising infection rates – every two steps forward will be followed by one step backward.

Rising Covid-19 numbers in the US

In the United States, the number of new Covid-19 infections is beginning to rise sharply again in some states. The United States has also flattened the curve, but in contrast to Germany or Switzerland no substantial decline in the number of cases can be observed. The US is thus actually still in the first wave and it seems that some states such as Texas or Florida have allowed their economies to reopen too quickly. The result is a massive increase in new infections, which in these states even exceed the peak values of May. Although we do not expect a lockdown as in the second quarter, the ongoing reopening of the US economy is likely to proceed more slowly than the US government desires.

Headwind for the V-shaped recovery

The battle against the corona virus is not over yet. The numbers in the US and Latin America of the last two weeks were a reminder. In the short-term, the resurgence in the USA will create a headwind with regard to the recovery of the largest global economy. We believe that this effect is only temporary and that the growth environment will steadily brighten in the medium term. In Asia and also in Europe, the situation is currently somewhat better than in the US. Unemployment in the developed economies is high at the moment, but we think there will be an improvement in the coming months. In addition, the US consumer is in better shape than during the financial crisis and therefore has greater flexibility. Nevertheless, the call for government support is unmistakable. We believe that the fiscal authorities will inject further liquidity on both sides of the Atlantic in the second half of the year. Especially in the US, where the presidential election campaign is entering a hot phase, consumers will probably be offered one or two gifts from Washington.

An unloved stock rally?

Despite an S&P 500 price rally of over 30% since the lows in March, investor sentiment is subdued. This divergence is best illustrated by the AAII Net Bull Bear Index. We see further signs of subdued sentiment and positioning on the equity markets in the speculative futures position in the S&P 500 Index, which is at its lowest level since the end of 2016. However, there are some risk indicators that are back in neutral territory, and so it can be concluded that the market positioning is cautious, but no longer as negative as at the beginning of the second quarter.

Neutral risk positioning meets volatility

Although the global economy is on the road to recovery at the beginning of the third quarter of 2020, the development of the corona pandemic is likely to create a sharper headwind on financial markets in the coming weeks. We maintain our neutral risk positioning, with a clear focus on selection in all asset classes. Particularly within equities, investors should not undertake experiments. Solid balance sheets and a good business model are the main criteria for selection. In phases of weakness, the portfolio can be supplemented very selectively with cyclical quality stocks. In the bond universe, interest-free government bonds offer little yield potential, with the exception of long-term US Treasuries, which can serve as a hedge. High-quality corporate bonds also remain in focus. Gold as a true diversifier naturally belongs in every private client portfolio.

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email: thomas.wille@lgt.com
Editor: David Wolf, E-Mail: david.wolf@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.

Impressum
Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
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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