Signs of a recovery

Financial markets started the year in a state of agitation. The feared escalation in tensions between Iran and the US never materialised, instead remaining an exchange of rhetorical blows. The rapid easing of the situation was mirrored in financial markets, showing that investors were ready to start the new year hopefully. They are more optimistic than pessimistic, but as long-term sentiment indicators show, they are not overly confident. The first step in a settlement of the trade dispute between the US and China as well as the long-awaited clarity on Britain’s exit from the European Union have contributed to this reduction in tensions.

At the same time, the latest economic data shows that the downward trend has bottomed out. In Germany, export expectations have increased, not least because China’s imports have grown significantly. This development is generally supported by the central banks, which are again pumping a lot of cheap money into the economy. As expected in our baseline scenario for 2020, the probability of recession has clearly decreased. The increased risks at the turn of the year did not materialise.

Taking these developments into account, we increase the weight of our equity position. Our focus is on Europe. The European market is best positioned in a phase of economic recovery. At the same time, investors there receive a dividend yield that is clearly higher than that of corporate bonds. And relative to other equity markets, valuations are not exaggerated. We remain convinced of gold, but we are trimming the position.

Taking these developments into account, we increase the weight of our equity position. Our focus is on Europe. The European market is best positioned in a phase of economic recovery. At the same time, investors there receive a dividend yield that is clearly higher than that of corporate bonds. And relative to other equity markets, valuations are not exaggerated. We remain convinced of gold, but we are trimming the position.

Equities neutral
The equity allocation is increased from underweight to neutral. We achieve this by increasing the allocation in the reference currency to the strategic quota. We are also building an overweight in European stocks.

Dollar Bonds
We closed the underweight in USD bonds. We do not expect interest rates to rise and we are bringing interest income into our portfolio.

Adjusting Position in Gold
Gold proved its value as a hedge at the beginning of the year. Now that overall risk for investors has decreased, we are reducing the overweight in gold.

Important legal notices
This document has been produced by VP Bank Ltd (hereinafter referred to as the “Bank”) and distributed by the companies of VP Bank Group. This document does not constitute an offer or invitation to buy or sell financial instruments. The recommendations, estimates and statements contained herein reflect the personal opinion of the relevant analysts of VP Bank Ltd on the date stated in the document and can be changed at any time without prior notification. The document is based on information which is believed to be reliable. This document and the estimates and assessments provided herein are prepared with the greatest care, but their correctness, completeness and accuracy cannot be assured or guaranteed. In particular, the information in this document may not include all relevant information regarding the financial instruments addressed herein or their issuers.

Further information on the risks associated with the financial instruments covered in this document, the proprietary trading of VP Bank Group, the handling of conflicts of interest in relation to these financial instruments and the distribution of this document can be found at http://www.vpbank.com/legal_notice