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fk: market commentary A Publication of Finanz Konzept AG st

1 Issue 2018

News: 3D-Printing - What Lies Ahead? à Continue reading on page 9

Stock Markets: Safe Investments Are Getting More and More Attractive à Continue reading on page 5

Bond Markets: Europe Or Emerging Markets – How Attractive Are The Respective Bonds? à Continue reading on page 6


2 contents 3

editorial

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in short

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stock markets

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bond markets

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currency markets

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commodity markets

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news

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services

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forex information event

Imprint Publisher: Finanz Konzept AG, Schulhausstrasse 42, CH-8002 Zurich Marketing: Lars Oberle, Daniel Kรถchli Composition: Daniel Kรถchli Assistance and Composition: Victor Culmann, Nicolas Jordan Frequency: quarterly Design: Tim Has, has@finanz-konzept.ch Photos: Shutterstock Order the fk: market commentary via email: info@finanz-konzept.ch by post: Finanz Konzept AG, Schulhausstrasse 42, CH-8002 Zurich Disclaimer This document was created by the Finanz Konzept AG. The opinions stated in it are the property of the Finanz Konzept AG at the time of compilation and can be revised at any time. The market commentary is only intended to provide information and to be used by the recipient. It neither represents an offer or a request on the part of the Finanz Konzept AG to purchase or sell stocks and bonds. Reference to the performance in the past is not to be understood as an indication for the future. The information and analyses contained in this publication were compiled from sources, which are regarded as reliable and credible. However, the Finanz Konzept AG is not responsible for their reliability or integrity and disclaims any liability. Assets in foreign currencies are subject to change in currency exchange rates. Neither this document nor copies thereof may be sent to the United States or taken there or be distributed in the United States. It is possible that the distribution in other countries can be restricted by local laws and directives. This document may not be copied without the written approval of the Finanz Konzept AG.

fk: market commentary 1st Issue 2018


editorial Dear Customers of Finanz Konzept AG, and other Readers, Like every other year, the year 2017 has just flown by. Looking at politics it was a rather interesting year. The Americans, as well as the Russians and the Spaniards kept us permanently busy. There were many insecurities and tensions, which on the one hand made us eager to see what the future brings, but on the other hand also made us more cautious. The markets showed little volatility throughout the year, which indicates that investors did not get bothered too much by the external events. In this edition of our market commentary we will take an outlook on the year 2018 and will resume the year that has ended. Due to pipeline-problems and the OPEC, oil has developed stronger than expected in the recent months. We will take a look into the future by focusing on innovative technologies, which will have a large impact in tomorrow’s world and will see how to profit from these developments. The Swiss economy continues to profit from the global economic recovery and from the depreciated Swiss Franc. There are several interesting developments regarding the forex und the stock markets to be looked at. We wish you a successful year 2018. Enjoy the read! Yours faithfully,

Daniel KĂśchli Director - Finanz Konzept AG

fk: market commentary 1st Issue 2018

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4 in short MONEY AND CAPITAL MARKETS • 10-year bonds continue to be overpriced (EUR, CHF) • Risk-Revenue-Potential of high-yield bonds completely exhausted

We recommend: • Increase cash-quotas in EUR and CHF to seize short-term opportunities. • Short-term US-bonds • Reduce long-term bonds (CHF, USD, EUR) • Underweight high-yield bonds

Capital market in % (government bonds 10 years)

We recommend: • Overweight EU stocks • Set stop-loss-limits

Stock market

09/30/17 12/31/17

3M

12M

-0.011 0.480 1.396 2.361 0.076

 à   à

    à

09/30/17 12/31/17

3M

12M

9157.4 3594.8 7372.7 2519.3 20356 12828

     

 à à à  à

09/30/17 12/31/17

3M

12M

1.142 1.297 0.970 1.177 132.9

à  à à 

  à  à

09/30/17 12/31/17

3M

12M

51.76 60.42 Gold (USD) 1278.5 1302.8 Silver (USD) 16.65 16.93

  

à à à

CHF EUR (DE) GBP USD JPY

-0.069 0.427 1.118 2.205 0.050

EQUITY MARKETS • Strong bullish momentum • Compared to EU stocks, the US equities seem overpriced • Profit taking seems probable this summer

SMI EUR Stoxx 50 FTSE 100 S&P 500 Nikkei Dax

9381.9 3504.0 7687.8 2673.6 22765 12917

CURRENCY MARKETS • CHF/EUR slowly reaches fair value • GBP with possible gains • EUR/USD strong in the short- to middle-term • JPY strongly undervalued

We recommend: • Neutral EUR/USD • EUR overweight • CHF slightly underweight • GBP neutral • JPY overweight

Currencies EUR/CHF GBP/CHF USD/CHF EUR/USD EUR/JPY

1.17 1.317 0.975 1.201 135.40

COMMODITIES: • Short-term potential for gold (seasonal strength) • Crude Oil prices are strongly influenced by political and external events, we expect growing volatility

fk: market commentary 1st Issue 2018

We recommend: • Hold precious metals as the hedge against the current geopolitical uncertainty • Adding precious metals to portfolios makes sense (Diversification)

Commodity market: Oil WTI (USD)


stock markets 5

Safe Investments Are Getting More And More Attractive If anyone asked about how to invest his savings a hundred years ago, one could have clearly recommended him or her company shares. No other asset class, neither corporate bonds nor real estate, would have shown a better performance than stocks. Surprisingly, the large stock crashes prove to be irrelevant in the long-run. In the recent past, the Dot-ComBubble or the financial crisis 2007-2008 led to heavy losses at the stock-exchange. In the long-term though these incidents can be seen as a drop in the ocean and a calm and patient investor can look forward to significant profits. Our investing philosophy is clearly reflected in this realization. We try to constantly accumulate profits and to guarantee stability throughout times of crises. Using this strategy, we managed to generate a significant increase for all three of our risk classes in recent years.

Our cautiously optimistic expectation for 2017 will be increased in 2018, which means that we will shift big parts of our client portfolios actively towards safe investments, because the risk-profit profile of shares and some bonds is, in our opinion, increasingly unattractive. During this upcoming year we will consequently reallocate client portfolios to increase the weight on safe investment products. By doing so, we do not only avoid threatening risks, but we also create potential entry opportunities at advantageous ratings. The liquid and safe investments are then available for promising expenditures without having to compensate potential losses first. Despite the more conservative wealth allocation, we will continue to pursue an active trading strategy, which allows us to profit from potential price increases.

Historical Yearly Performance 60%

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Conservative Cumulative conservative

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Dynamic Cumulative balanced

fk: market commentary 1st Issue 2018


6 bond markets

Europe or Emerging Markets: How Attractive Are The Respective Bonds? The year 2017 was rather mediocre for investors with European government bonds. On the one hand, Portuguese bonds, for example, have an outstanding performance with profits up to 14%, including interest rate incomes. Due to the economic wellbeing of the Southern European economy, the rating agencies Standard & Poors as well as Fitch were forced to increase their ratings to reflect this positive development. On the other hand, the European Central Bank (ECB) did continue to keep the interest rates low by buying government bonds. Even though it will cut its spending on bonds to 30 billion as of January 2018, we do not see a clear recovery of the key interest rates yet. Ten-year German government bonds, for example, are still expensive with 0.4%, whereas the French equivalent is only slightly higher rated with 0.75%. There is still a clear dependence of the Central Banks, which might lead investors into riskier bonds. A slight rise in the interest rates is possible for 2018, but it is essential for investors to keep an eye on the Central Banks’ decisions. We predict that the ECB will sooner or later tighten their loose money policy due to the current positive economic development.

fk: market commentary 1st Issue 2018

Riskier bonds coming from developing countries turn out to be far more attractive than the European ones. Brazilian tenyear bonds, for example, currently yield at 10.4% and the Russian ones with the same maturity perform at 7.6% per year. Investors’ focus thus lies on emerging markets, but it must be kept in mind that theses high yields come at the price of higher risks. Elections are about to happen in Brazil as well as in Russia, which could have an unforeseen influence on the foreign exchange. The ongoing worldwide economic growth though has a stabilising effect on emerging markets, which could thus be of advantage for investors in these economies. Our expectations for safe bonds are rather restrained. The interest rates should be raised in 2018 but good entry opportunities will be needed in the next twelve months. Investments into emerging markets are worth a consideration, although a thorough research is strongly recommended, and higher price fluctuations are possible.


currency markets 7

The Euro Remains Stable - How Long Is It Going To Last? The year 2017 was all about the appreciation of the Euro. The common currency was able to appreciate to CHF 1.17 compared to the Swiss Franc, what nearly closed the large gap in the price parity of these two currencies. Exports boosted Switzerland’s growth of nearly 1.2% in the third quarter, compared to the previous year, which indicates that the economy has overcome the shock it endured after the Swiss National Bank’s (SNB) decision to overthrow the minimum exchange rate. Even though the SNB announced to keep the key interest rate negative, a slight appreciation seems predictable. Nonetheless, the Swiss Franc remains largely overrated in comparison to emerging markets, which could eventually change in the year 2018.

afterwards. The remaining insecurities concerning the Brexit still highly influence the GBP/EUR exchange rate. Optimistic investors however should keep an eye on the Pound, which could rise if the ongoing negotiations succeed. Driven by the positive market sentiment in the Eurozone and the expectation that the European Central Bank puts an end to its loose money policy, the Euro increased to the value of EUR/USD 1.19. The announcement that bond purchases will be cut in half, as of January 2018, could support the European currency even more. The Dollar, on the other hand, appears to face a clear depreciation due to the expected rise of the interest rates in the USA and the political insecurities, such as the elections in Italy or the tense situation in Catalonia. We expect the Euro to depreciate accordingly during the year 2018, which will eventually lead to an approximation of the price parity above EUR/USD 1.20.

Although the EU Commission’s and Great Britain’s alleged breakthrough on the 8th of December led to an increase of the Pound in the short-term, the effect could not be kept in the long-term and the British currency depreciated clearly

EUR/USD 1.3000

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fk: market commentary 1st Issue 2018


8 commodity markets

The Development of Oil, Palladium and other commodities Major political developments have contributed to a steep price hike of the world’s leading energy provider, crude oil. Strong demand and decreasing inventories had a positive effect on oil prices in the end of last year. Importantly, major problems in Europe strengthened concerns about the aging pipeline infrastructure of the old continent, as the Forties Pipeline in the UK had to be shut down to proceed to an emergency fix or explosions in Austria and, most recently, considerable problems in Libya dominated the news. The relatively high valuation of the European crude, Brent, was a result of different factors that could hardly have been predicted. The spread between the American crude type, WTI, and Brent is unusually high. We expect a normalisation of the spread and therefore a smaller difference between Brent and WTI to happen in the coming weeks and months. In the long term, the current geopolitical situation makes it difficult to accurately assess what will influence the price of crude oil. Fundamental data such as the fracking production in the United States, or the ability of the OPEC to enforce their supply-restriction policy will most probably strongly influence the traders’ decisions and therefore influence the markets. High hedging activity indicates solid production rates of crude oil, but the demand remains unclear. It much depends on the economic outlook of China and other big economies, as positive macroeconomic data often results in an increasing demand for the fossil fuel. In the long

term, we would appraise a USD 60 level to be realistic, giving different factors on demand and supply side being uncertain and equally strong. Externalities and unexpected developments are probable, though, impacting considerably the outlook of crude, making it highly volatile and somewhat risky. Precious metals went through a couple of interesting months in 2017. Due to the so-called Diesel-scandal speculators forced an increase in the price of palladium. Platin, on the other hand, did not perform well as a substitution metal for palladium. Even though there was a shortage in the supply during 2017, it was a rather disappointing year for the precious metal and the value ended not far from the one in 2016. Nonetheless, could the ongoing substitution debate lead to a better performance in 2018. The two traditional precious metals, gold and silver, did not perform excessively well, which was mainly caused by arising confidence in the stock-exchange. Even though the markets stayed relatively calm during the high political insecurities, this situation could change if events escalate in the following year. Our recommendations still contain gold and silver as a security in a balanced portfolio, because political crises, a crash of crypto currencies, rising interest rates or a correction of the stock-markets could create significant profits for these metals.

Brent Oil 67.00 65.00 63.00 61.00 59.00 57.00 55.00 03/10/17

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news 9

3D-Printing - What lies ahead?

Looking back a couple of years ago, 3D-printing was touted to be, along with connected assembly lines and robots, the summit of the industrial development and the motor of the next industrial revolution. The British magazine “The Economist” already proclaimed the end of standardised production methods; start-ups concerning 3D-printing seem to pop up at every university. Since then, it seems that not many changes have occurred, at least from a consumer point of view. The individualisation of supply chains hasn’t reached mainstream yet. But what are they all about, these potentially revolutionary machines? We see the industry of 3D-printers, similarly to cyber security, as one of the technologies that will play a major role in the future of research, development and mass production of goods. Unknowingly to the public, the printers have slowly gained popularity amongst manufacturers. The steady rise in demand for 3D printers can be observed by looking at a modern factory adidas has built in Germany. The so-called “Speedfactory” is highly automated and produces running shoes in a highly efficient process. This is regarded as highly unusual, as normally textiles and footwear tend to be made in cheap labour countries. These revolutionary production methods are expected to be more common in the future, especially in developed nations where salaries make up an important part of production costs. Higher productivity and an improved time-to-market are strong advantages of the new technology. International companies such as Volkswagen have acquired 3D printers to guarantee a more flexible production, having the possibility to quickly react to changes and easily print new or modified parts. Instead of

stopping the production and asking an external contractor to manufacture the required parts, it is now possible to cut down the production time of critical objects in a much more efficient and convenient manner. Research and development centres in companies as well as universities are already relying on the new technology. 3D-printing enables them to cheaply produce prototypes and models exactly how they envisioned them, without having to wait for a small-batch production to be set up. Gartner, a company specialised on market analysis, created a framework to classify the stage of a new technology’s market penetration. Typically, it starts with a hype, followed by a phase of disillusionment to finally reach the so-called “plateau of productivity”, which essentially means that it has successfully penetrated the market. Such a development has been observed for most revolutionary technologies in the past, making it a reliable indicator for when to expect a broader acceptance in the mainstream market. Currently, 3D-printing is emerging from the disillusionment and substantial demand is expected for the coming years. In our opinion, 3D printers have matured substantially in the last couple of years, as new and refined models hit the market and see strong potential across many different industries. The next big thing in individualisation has finally arrived. We have gathered promising companies with a high exposure on 3D-printing, amongst other industries such as automation or cyber-security, in our social investing basket “Next Economy” to benefit from the growth potential these technologies have to offer. fk: market commentary 1st Issue 2018


10 services

You can count on our services Private and institutional investors appreciate our independent and professional services in all areas of wealth management and investment advisory. Benefit from our competence and experience and join us as we head into the future. WEALTH MANAGEMENT ¬ Individual mandates ¬ Fund mandates ¬ Special mandates

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fk: market commentary 1st Issue 2018


depot check 11

The securities portfolio must fit the investor For many investors securities are an essential component of their retirement provisions, while others mostly want to maximize their ongoing income. For the one, security is the focus, while the other is prepared to accept financial risks for opportunities. The quality of a portfolio is therefore primarily measured by how well the investment strategy and investment goals fit together. A securities portfolio is more than the sum of individual shares and investment funds. We put together the risk and yield profile of your overall portfolio on the basis of your investment goals and your personal situation, on the one hand, and on your current statements of deposited securities, on the other. We calculate probabilities of default and yield expectations and compare your portfolio with the benchmark (comparison index). We present this analysis to you, together with our proposals for optimisation in a personal conversation.

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Market Commentary Issue 1 2018  

Market Commentary Issue 1 2018