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Monthly Investment Outlook

Monthly Investment Outlook

We publish a Monthly Investment Outlook that highlights our convictions on equities and bonds, as well as recent asset allocation changes.


Summary

  • MONTHLY INVESTMENT OUTLOOK - Refocusing on risk management
  • GLOBAL TACTICAL ASSET ALLOCATION - Prudence after the spectacular rebound
  • UBP ECONOMIC OUTLOOK - Severe global recession in progress
  • UBP ECONOMIC OUTLOOK - Hopes and fears of lockdown exits
  • GLOBAL BONDS - Favouring credit with central bank "backstops"
  • GLOBAL EQUITIES - Asymmetry and selectivity
  • RECENT VIEW CHANGES - Rotating equity allocation into quality stocks while staying protected

  • Portfolios were rewarded by our pivot to a ‘risk-on’ bias in late- March as we anticipated and aligned exposure to the ‘whatever it takes’ policy backdrop that played out with both fiscal and monetary measures throughout April.
  • As the world begins the fourth full month of battling COVID-19 and its economic and social fallout, signs of fatigue are emerging on the part of citizens as well as policymakers in keeping up the frenzied pace of lockdown and conjuring up creative measures to contain both the virus as well as the widening economic shocks.
  • Indeed, while lifting lockdown orders in continental Europe appears warranted given the fall-off in new infections, plans for a similar US easing come amidst daily infection rates in April that still sit near historical peaks which may portend secondary outbreaks in the future.
  • Moreover, though early fiscal measures in the US and Europe demonstrated the ‘whatever it takes’ mantra, more recent discussions highlight the political hurdles that lie ahead should subsequent rounds of stimulus be required in the months to come in an effort to shore up economies.
  • However, central banks – and the Fed in particular – appear committed to continue easing financial conditions to meet the over USD 1 trillion in future funding needs of corporates and households. There are also backstops in place to allow the Fed to mimic the ECB in stabilising and beginning the long process of compressing credit spreads in the months ahead.
  • In the equity space, the 11% rebound in April leaves global equities on the verge of fully pricing in an economic recovery scenario as early as 2021. As a result, we have restored meaningful asymmetry using similar options strategies that shielded portfolios well during the early weeks of the outbreak.
  • We believe that the commitment of central bank and fiscal authorities to avert a systemic credit shock remains strong primarily via ongoing money printing to finance budgetary spending programmes. The dramatic growth in US M2 alone reflects this joint pledge.
  • Indeed, taking into account the yet unused programmes the US Fed and the Treasury unveiled in March and April, the 50% growth in the Fed balance sheet to USD 6 trillion may in fact reach USD 10 trillion by year end. This will provide a tailwind for gold in the months ahead.
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