In a Nutshell

Our view on the markets

Different growth speeds

The US employment market recently delivered a new warning sign of a forthcoming recession, but it is questionable whether it will already take hold this year because economic activity in the USA still appears to be robust. There are much clearer adverse signals emanating from the manufacturing sector in Europe, where Germany looks set to stay in negative growth territory this summer. Meanwhile, the global rate-hiking cycle is nearing its end.

The Achilles’ heel of China’s economy

The real estate market was China’s golden goose for years, but has since become the Achilles’ heel of the Middle Kingdom’s economy. In light of demographic and geopolitical challenges, and given concerns about financial stability, the government of China no longer views the real estate sector as an all-purpose automatic growth engine. That’s why in spite of a mediocre economic outlook, a renewed round of heave-ho real estate sector stimulus is unlikely to occur in the near future.

The bears have thrown in the towel

Nothing stirs investor sentiment as much as market prices do. In the wake of a lengthy rally, sentiment on equity markets in recent weeks has accordingly gone from depressed and wary to cautiously optimistic for a while and from there most recently to mildly overheated and euphoric about AI. The near-term risk/reward tradeoff has worsened in any case, so investors would be well advised to position themselves a bit more defensively or to think about a hedging strategy.

Extravagance in demand

The market for luxury goods has long since pulled out of its COVID trough. The rising middle class in China and other emerging economies as well as younger generations’ altered consumption habits look set to drive a continuation of constantly increasing demand for (expensive) extravagance in the years ahead. The luxury industry’s practically crisis-proof growth story remains intact and promises further outperformance potential in the long run.

Do mutual fund managers believe in ESG?

In the wake of greenwashing scandals and a period of relatively weaker performance, many investors are viewing “sustainable” investment strategies a bit more sober-mindedly than before. Although it has become widely recognized that one doesn’t necessarily have to sacrifice returns with ESG-compliant investments, conversely there is also mounting evidence that “green” doesn’t automatically generate an outperformance. Mutual fund managers in the USA likewise appear to realize this.

Artificial intelligence is on the rise and will substantially change the world (of work) in the years ahead. Although the AI revolution will probably wipe out some jobs, it may create new job profiles and thus more jobs (and more prosperity) on aggregate just like similarly disruptive inventions have in the past. At any rate, generative large language models like ChatGPT will likely make the work of financial journalists and analysts easier because by now they are even capable of deciphering one of the most mystifying linguistic enigmas in the world of finance: the US Federal Reserve Board’s comments on its interest-rate decisions. ChatGPT-3 was already able to interpretively classify the nuances of Fedspeak utterances between “dovish” and “hawkish” similarly as well as humans can. The latest large language models, however, now even articulate “good-as-human” reasonings for their classifications.

Stuttering economic activity (in some places) and very evidently receding inflation rates won’t make central bankers’ work easier in the months ahead, nor will they make it easier to communicate monetary policy.