Although inflation rates and bond yields did not increase further in May, global equity markets had to suffer another setback (-5%). With around 17% losses since the start of the year, global equities are standing on the brink of a bear market (20%). For a Swiss investor, equity losses are somewhat less dramatic thanks to the 11% appreciation of the US dollar.
According to a survey, fund managers are underweight in equities on average and cash levels are at their highest level in 20 years. Equity markets are already pricing in a slump in the economy; the US PMI, on the other hand, currently expects further solid growth at 55. The global economy also seems to be robust so far. Certain indicators, such as the German ZEW index, are in the process of moving upwards again.
If inflation actually falls as expected, the pressure on central banks is likely to ease somewhat and the likelihood of a soft landing will increase. This combination could provide for positive equity markets in the second half of the year – which is why we have closed our equity underweight. The downside risks are currently still too high for an equity overweight. We are also keeping the duration of our portfolios close to the benchmark after ending the underweight we have had since the start of the year.