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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 - A shifting risk-reward dynamic
  • GLOBAL TACTICAL ASSET ALLOCATION - Solutions with asymmetric risk-reward profile are valuable
  • UBP ECONOMIC OUTLOOK - Sound domestic demand fundamentals and supportive economic policy
  • UBP ECONOMIC OUTLOOK - Trade war: this time is - always - different...
  • GLOBAL EQUITIES - Improving earnings momentum but less scope for multiple expansion
  • GLOBAL BONDS - Risk reward appears less attractive in Euro Investment Grade
  • RECENT VIEW CHANGES - Rebuilding capital protection in equities; locking in gains in EUR fixed income

  • Global equities continued their upward trek in April as further signs emerged to cool US recession talk that had built through the first quarter of the year. Earnings expectations remain under pressure although downward momentum is easing with upgrades in the US following a productive earnings season. Even the European earnings season has shown encouraging top line growth trends.
  • Global equity valuations continued to expand with US valuations now nearing the PE expansion seen in previous Fed interest rate pauses. This leaves the gap between the US and the rest of the world near historical extremes.
  • While this differential is encouraging for non-US markets, the renewed threat of trade conflict between the world’s two largest economies may allow this imbalance to persist until resolved. In the meantime, a recovery in trade and global growth is a necessary catalyst for earnings upgrades in export-driven Europe and Japan.
  • The more balanced language from the US central bank also introduces new concerns for investors. With a ‘dovish’ policy tilt since late-December, the shift places a greater burden on economic growth, earnings and valuations as drivers to a potential next leg in markets rather than the multiple expansion-driven year-to-date returns.
  • With valuations elevated and downward earnings momentum easing, sluggish capital spending trends in the face of trade uncertainty pose the key risk to what has been resilient economic growth looking ahead.
  • In light of the shifting risk-reward dynamic, we introduced capital protection strategies into our equity allocations in April. Combined with hedge funds, these ‘asymmetric’ strategies position portfolios to continue to participate in the ongoing upside of a durable US economy while cushioning the prospect of negative surprises, including a potential global geopolitical shock or a faltering rebound in economic growth. We have also closed long EUR and CHF exposure as the USD may assume a safe haven status in a more uncertain environment.
  • Given the sharp fall in euro risk-free yields and the noticeable gains in euro investment grade credit, we no longer believe investor compensation is adequate for the interest rate and credit risk looking forward. As a result, we lock in YTD gains in euro IG in favour of capital preservation strategies in conservative portfolios and Danish mortgage bonds in more balanced strategies.
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Investment Outlook 2019

A look back on UBP's Investment Outlook

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