04 August 2011: SC – Markets under the spell of the national debts crisis

Politicians in the European currency union have already tried several times to lay the foundation for a solution to the debts crisis by means of packages of measures. But the markets remain sceptical because the great clearing kick has still to come. Politicians have apparently failed to recognise the seriousness of the situation, although the markets have recently turned their focus on Italy, one of the largest countries in the currency union. In the case of how the political players are dealing with this crisis, there are parallels to the USA where the squabbling about raising the debt ceiling serves at best for making one’s own mark, but is otherwise just causing damage. No wonder that investors are extremely cautious towards riskier investment classes.

US economy better than actually perceived
Figures on the development of the economy as well as on companies’ profit situation have only been weighted a little by many market players for some time. Our analyses come to the conclusion that the recently poorer macroeconomic figures from the USA are to be seen as a temporary growth weakness. We do not consider a relapse into recession to be very probable. In addition, US companies’ profits in the second quarter surpassed expectations in the majority of cases. Regarding the debt dispute, we are assuming that the politicians in Washington will reach an agreement shortly before the deadline.

In our currency strategy, we have an underweight in JPY in favour of AUD, NOK and SEK. While the Australian currency should profit from the boom in gold and commodities and from interest increase fantasies, the Norwegian krone is a safe haven owing to the absolutely sound government finances and further very good fundamental data. In turn, we consider the Swedish krona to be favourably valued.

In the case of the bond portfolios, we are keeping to a neutral duration in most currency blocks. Corporate bonds are clearly preferred to government bonds. On the one hand, the defaults risks are slight owing to the good liquidity situation and strict rein on costs, on the other hand, we deliberately want to diversify out of government bonds.

Equity markets in Western industrial countries are on the whole favourably valued. Many bad pieces of news from the debts front have been priced in so that we continue to regard a slight overweight in equities to be justified. However, the strong CHF is leading to a shift within the shares strategy. Because Switzerland’s competitive situation has clearly deteriorated, we are reducing Swiss shares in favour of US stocks.