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Baloise Market View
Current economic and financial market outlook
Monitoring COVID-19: Case numbers
Easing in Europe, while cases in South America rise sharply
Baloise Market View, 15 June 2020 2
5-day average of new coronavirus cases
per 100'000 inhabitants
Global coronavirus case numbers
0
2
4
6
8
10
12
14
16
18
20
Jan Feb Mär Apr Mai Jun
United States
Brazil
Russia
United Kingdom
Spain
Italy
France
Germany
Turkey
India
0
500'000
1'000'000
1'500'000
2'000'000
2'500'000
3'000'000
3'500'000
4'000'000
4'500'000
5'000'000
5'500'000
6'000'000
6'500'000
7'000'000
7'500'000
8'000'000
8'500'000
Jan Feb Mär Apr Mai
United States
Brazil
Russia
United Kingdom
Spain
Italy
France
Germany
Turkey
India
Rest of the World
Sources: Baloise Asset Management, Bloomberg Finance L.P.
Monitoring COVID-19: Reproduction numbers
Cases are likely to rise again in Russia, South America, India and the USA
Baloise Market View, 15 June 2020 3
COVID-19
Reproduction number*
Quellen: Baloise Asset Management, Centre for the Mathematical Modelling of Infectious Diseases per 11.06.2020
*Number of persons infected by a sick person on average; countries without values in white
Financial market development since the beginning of the year
Recovery in many market segments, but fear of a second wave is increasing
Baloise Market View, 15 June 2020 4
BondsEquities FX Alternatives & Commodities
Source: Baloise Asset Management, Bloomberg Finance L.P.
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
per 15.06.2020
2020 High
2020 Low
Performance ytd in local currency
Macroeconomic environment: Summary
OECD scenarios indicate a permanently lower growth path
Baloise Market View, 15 June 2020 5
› Governments are gradually lifting lockdowns, thereby reviving the global
economy. However, the economic damage of the pandemic is likely to be
lasting.
› In our baseline scenario (p.8), we assume that the global recession will
bottom out in the second quarter.
Economy
› The US policy rate is in a target range of 0.00-0.25%. The quantitative
easing program (QE) is unlimited in terms of volume and now also
includes corporate bonds.
› The European Central Bank (ECB) has increased the volume of QE to
cushion the pandemic by an additional EUR 600 billion to a total of 1.35
trillion. EUR 1.35 trillion and extended it by six months until mid 2021.
› The Swiss National Bank (SNB) increased the tax-free allowances to
relieve the banks. It also introduced a new refinancing facility to provide
additional liquidity to the banking system
› We are currently observing strongly deflationary trends, which are likely to
continue in the coming months.
› In the USA, inflation (excluding energy and food prices) is 1.0%. Core
inflation in the euro zone is currently 0.9% and in Switzerland only a
meager -0.5%.
Inflation
Monetary policy
Production slump with weak recovery
World GDP, Index Q4 2019 = 100
Macroeconomic environment: OECD GDP forecasts for 2020
Massive slump in growth, even without a second wave
Baloise Market View, 15 June 2020 6
-16
-14
-12
-10
-8
-6
-4
-2
0
Single hit Double hitSources: Baloise Asset Management, OECD
In % vs. previous year
Macroeconomic environment: monetary policy
Clear signal from the Fed: no rate hike expected until 2022
Baloise Market View, 15 June 2020 7
0.0
0.5
1.0
1.5
2.0
2.5
2020 2021 2022
June 2020 December 2019Sources: Baloise Asset Management, Federal Reserve Bank
Fed interest rate forecasts (aka the Dot Plot)
Economic and financial market outlookOur current scenarios for 2020
Baloise Market View, 15 June 2020 8
DownsideBase case
Ec
on
om
yF
ina
nc
ial
Ma
rke
ts
70% Upside
› U-shape: Sharp slowdown in growth leads
to global recession in the first half of the
year, followed by the beginning of a
gradual recovery in the second half
› L-shape: Severe global recession as the
virus spreads uncontrollably and the
economic support measures fail
› V-shape: Global recession in the first half
of the year with very strong growth
rebound in Q3 and Q4
› Interest rates are moving sideways from
current levels
› Elevated credit spreads due to
downgrades and rising default rates
› Short term volatile stock markets
development (+/- 15% from current levels)
› Interest rates reach new lows
› Sharp rise in credit spreads due to
massive rise in default rates and wave of
downgrades
› Sell-off on stock markets (losses >30%
from current levels)
› Slight increase in long-term interest rates
› Gradual narrowing of credit spreads due
to ample central bank support
› Stock markets recover significantly
thanks to very generous liquidity situation
As
su
mp
tio
ns
› Fed: 0-0.25% + QE
› ECB: TLTRO + extension QE until 2021
› SNB: High FX interventions
Mo
ne
tary
po
lic
y › Fed: further QE expansion in size and
scope
› ECB: -10bp + QE / adjustment capital key
› SNB: -25bp + high FX interventions
› Fed: 0-0.25% + QE is throttled from Q4
› ECB: TLTRO + QE only until the end of
2020
› SNB: Only gradual FX interventions
› Global pandemic remains under control
thanks to extensive lockdown measures
› Steady but prudent lifting of lockdown
measures keep reproduction numbers R(t)
below or close to 1 and further waves
remain manageable
› R(t) increases well above 1 leading to
even more severe global pandemic waves
› Full lockdown measures have to be
reinstated in most countries
› Massive default wave in the oil sector with
spill-over effects into other industries
20% 10%
› Rapid containment of the pandemic thanks
to "social distancing“
› Faster than expected lifting of lockdown
measures with no impact on R(t)
› Potential game changers on the treatment
side (tests or vaccine)
Risk overview
Main risks in the coming 12 months
Baloise Market View, 15 June 2020 9
Europe
› Uncontrolled coronavirus pandemic leads to a massive slump in
growth and a burden on the budgets of already highly indebted
countries Downgrade from Italy to HY
China
› Global slump in demand leads to a significant and
sustained slowdown in growth
› Rising credit defaults due to the high indebtedness of
state-affiliated companies
Global
› Another massive increase in global COVID-19 case numbers after
initial easing measures
› Escalation of the trade dispute between the USA and China
USA
› Slump in consumption due to rapidly rising
unemployment caused by the coronavirus
› Persistently low oil price leads to a massive increase in
default rates in the US energy market
› Volatility in the face of US presidential elections
Baloise Market View: At a glance
Positioning against benchmark
Baloise Market View, 15 June 2020 10
› Equities: The rising number of cases and the bleak economic situation recently caused
volatility again. We therefore continue to prefer a defensive positioning in the short term.
In our baseline scenario, we assume that the lockdown measures will be further relaxed
and that the massive economic policy measures will cushion the economic downturn.
We therefore consider equities to be attractive over twelve months. However, we are
constantly monitoring the course of the coronavirus cases and the high-frequency
indicators and would also rebuild our equity holdings more quickly if any medical
progress were to be made or if an economic trend reversal were to become apparent.
› Bonds: We expect a long term low interest rate environment both in the short term and
over 12 months, which is why we underweight bonds overall. Spreads on investment
grade corporate bonds have narrowed, but still appear attractive to us, also in view of
the default risks. We therefore overweight corporate bonds in the medium term, but are
cautious in terms of credit selection, as the crisis is likely to continue to lead to rating
downgrades and higher default rates. Government bonds are unattractive against the
background of our current baseline scenario.
› Alternative investments: The alternative investment segment offers attractive sources
of return with relatively stable income, such as real estate. But here too, selectivity is
advisable. The current valuations of real estate funds, for example, leave little room for
further appreciation on average, but the broad diversification between the individual
funds offers opportunities and overall real estate funds still offer an attractive risk
premium.
› Cash: In view of the volatile market environment, an increased liquidity ratio is indicated
in the short term despite negative interest rates. In the medium term, this should be
reduced back to neutral by shifting into higher-yielding asset classes.
Attractive Attractive
● ●
● ●
● ●
● ●
● ●
● ●
● ●
● ●
Sources: Baloise Asset Management per 12.06.2020
Senior Secured Loans
Cash
Fixed Income
Corporate Bonds
Government Bonds
Alternatives
Real Estate
3-6 Months 12 Months
Unattractive Unattractive
Equity
Baloise Market View: In detail
Positioning against benchmark
Baloise Market View, 15 June 2020 11
● ●CHF ● ●EUR ● ●USD ● ●
EmMa (USD) ● ●● ●
CHF ● ●EUR ● ●USD ● ●
Government Bonds CHF ● ●EUR ● ●USD ● ●
● ●Real Estate Funds (CHF) ◌ ● ●
Equity (CHF) ● ◌ ●Senior Secured Loans USD ● ●
Cash CHF ● ●Current view ●; previous month ◌
Sources: Baloise Asset Management per 12.06.2020
More
attractive
3-6 Months 12 Months
Less
attractive
Less
attractive
Corporate Bonds
Alternative
Investments
Fixed Income
Equity
More
attractive
Baloise Asset Management
Aeschengraben 21
CH-4002 Basel
www.baloise-asset-management.com
Disclaimer:Baloise Asset Management AG accepts no responsibility for the key figures and performance data used. The content of the publication contains opinions on
market developments and is intended solely for information purposes and is not intended to provide investment advice. In particular, the information in no way
constitutes an offer to buy, an investment recommendation or a decision-making aid in legal, tax, economic or other matters. No liability is assumed for losses
or lost profits that could arise from the use of the information.
Swiss Exchange AG, ("SIX Swiss Exchange") is the source of the Swiss Performance Index (SPI) and the Swiss Bond Index (SBI) and the data contained
therein. SIX Swiss Exchange was in no way involved in the preparation of the information contained in this report. SIX Swiss Exchange makes no warranties
and excludes all liability (whether arising from negligence or otherwise) with respect to the information contained in this report - including but not limited to
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Baloise Market View, 15 June 2020 12