marketview
Introduction
Half-yearreview
Areviewofthefirstsixmonthsof2024featurespositivedevelopments, surprising aspects, and some sobering realisations. Thetrendontheglobalequitymarkethasbeenverypositive,drivenbygrowthdynamicsforcompanieswithlinkstoAI. Other benign factors for the equity market have included the sustainedturnaroundincorporateearnings,whichhaspromptedanalyststoupgradetheirearningsestimatesforallmarket regions,aswellastheveryhighlevelofoperatingmarginsand theprospectsforinterestratecutsduringthecourseoftheyear.
Oneofthesurprisingaspectshasbeentherelaxedattitude of the capital market in relation to the numerous geopoliticalcrisesandtheirreal-lifeimpactssuchasinterruptionsin globalsupplychains,higherfreightshippingratesandmoreexpensivecommoditiesduetoelevatedriskpremiums,moredifficultconditionsforimportsandexportsresultingfromcustoms duties,andotherrestrictionsmotivatedbyeconomicpolicy,etc. Theperformanceofgovernmentbondshasbeensobering, as the decline in yields that many expected in anticipation of interest rate cuts has not yet really materialised. As a consequence of this, bond yields have actually risen, rath-
er than fallen. Because despite all of the problematic factors, global economic data have actually improved in recent months and the likelihood of recession has declined significantly. One unexpected aspect has been that while inflation has remained at elevated levels, it has so far not actually hampered the global economy, neither through its direct impact on price levels nor through its indirect impact via interest rate levels, and that consequently central banks are taking a much more reserved approach to cutting interest rates.
In the tactical asset allocation, we were overweighted in equities and underweighted in bonds during the first half of the year, which allowed us to generate significantly positive performance contributions for our multi-asset portfolios. With regard to our current positioning, we are now seeing some deterioration in the macro-economic data, whereas the equity market has been skipping along from one high to the next, and sentiment already looks overdone and thus – as a contrarian indicator – suggests some deceleration in the foreseeable future. With an eye to this, we are taking some of the profits on equities and currently adopting a neutral stance.
Your team at marketview
Developments on the global equity market have been very satisfactory, driven by corporate growth dynamics.
Market Conditions – Bond Markets
Euro government bonds: moving sideways with elevated volatility
In June, the euro bond market was dominated by two events. First, the European Central Bank (ECB) moved ahead with the initial interest rate cut that it had previously communicated, lowering its three key interest rates by 25 basis points each. This move was made possible by the downward trend in euro area inflation, with the ECB thus taking action before the US Fed in this case. The euro bond market had already priced in the ECB’s interest rate decision. Following the rate cut, the comments were mostly characterised by a reserved attitude about further interest rate cuts in the near future, as a result of which euro government bonds moved sideways with elevated volatility. Towards the end of the month, the parliamentary elections in France and the possibility of political changes then triggered renewed weakness on the euro bond market, in particular due to the higher risk spreads on French bonds. Outside of the government bond market, corporate bonds once again saw better performance.
Market Conditions – Equity Markets
Equity market: new all-time highs in June
The positive developments on the global equity markets continued last month.
On a euro basis, it was once again the US stock markets that posted the biggest gains, driven by growth shares and AI names in particular. Both the broad S&P 500 stock index and the tech-heavy Nasdaq were able to advance to new all-time highs. However, performance on the global Emerging Markets was also positive recently, ending the years-long downtrend in relation to the developed markets.
The European equity market developed slightly weaker, as tangible price losses were registered in response to political tensions, especially in France.
Returns in EUR, Source: Bloomberg Finance L.P., Raiffeisen KAG, 29 Dec 2023 – 28 Jun 2024; as of: 28 Jun 2024
Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast, or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, fast profits) or any other damages. (www.msci.com).
Market Conditions – Commodities And Currencies
Pressure on euro, consolidation for commodities
Political news in Europe, especially with regard to France, generated significant pressure on the euro as well in June. The common currency temporarily dropped below 1.07 versus the US dollar. The euro also depreciated versus the Swiss franc.
The depreciation trend for the Japanese yen against USD continued without interruption.
The commodities index remains in a consolidation phase, with the recently much weaker performance of industrial metals contrasted against the mildly higher oil price.
Precious metals, in particular the gold price, continued to consolidate following the sharp rise in the spring.
Source: Bloomberg Finance L.P., Raiffeisen KAG, 29 Dec 2023 – 28 Jun 2024; as of: 28 Jun 2024
Outlook – Global Economic Situation
Source: Bloomberg Finance L.P., as of: 28 Jun 2024 Global economic situation – GDP 2023–2025
Outlook – Global Economy
Economicrecoverystalling
Aftermonthsofglobaleconomicindicatorstendingtoimprove,theeconomic situation has started to look less rosy again of late. Deviations between the economic data and analysts’ expectations have now slippedintothenegativedomaininallregions.
IntheUSA,consumerconfidenceisgraduallyweakeningandtherehave alsobeenmountingsignsofaslowdownontherealestatemarket,while the rate of unemployment is slowly but steadily climbing, albeit from a verylowlevel.Recently,someoftheleadingindicatorsfortheUSservices sector, which has been quite dynamic so far, started to suggest some weakening,includingthedevelopmentofemploymentinthispreviously robustsector.
In the euro area, manager surveys in manufacturing have now once againslippedsubstantiallybelowthegrowththresholdfollowingalonger period of recovery, thus signalling a renewed risk of recession in this sector.Bycontrast,accordingtothemanagersurveystheservicessector intheeuroarearemainsinpositiveterritory. Whilethisrenewedslightdeclineineconomicindicatorsisnotyetacause for concern, it is possible that the cyclical upturn in economic performancethatwasbeingexpectedupuntilquiterecentlymaybeatrisk.
Source: Bloomberg Finance L.P., Raiffeisen KAG, as of: 28 Jun 2024
Outlook – Inflation And Central Banks
Ratecutmaybefollowedby(another)ratecut
AftertheECBlowereditskeyratesinearlyJune,thequestionnowis whetherandwhenthenextmovewilloccur.Atpresent,themarket is anticipating that another rate reduction of 25 basis points will occurintheeuroareainSeptember,whereasthefirstdecisionto changeinterestratesintheUSAmaybetakenatthattime. This remains uncertain, however, especially since the US economy has continued to look robust so far and the process of disinflation has been proceeding extremely slowly for many months. In particular since the US labour market data were still looking better than average up until recently, the Fed has signalled some reservation about interest rate cuts in the near future. At the moment, thereareexpectationsfortwointerestratecutsbytheendofthe year in the USA. Along with the annual central banker meeting in Jackson Hole at the end of August, the upcoming economic and labour market data could provide some indications as to whether the market assessment is correct this time or there will be further delay(thusmore“higherforlonger”).
Inflation, USA (%, yoy)
Inflation, euro area (%, yoy)
Inflation, Austria (%, yoy)
Source: Bloomberg Finance L.P., Raiffeisen KAG, as of: 28 Jun 2024
Outlook – Bond Markets
Bond markets: corporate bonds still preferred
In the bond segment, corporate bonds and Emerging Market bonds continue to look attractive in relation to government bonds, in light of the interest rate conditions and the related yield premiums.
In the event that the global economic situation does indeed start to deteriorate again and a recession looks more probable, speculation about interest rate cuts would quicky gain momentum again, prompting more market participants to return to the risk-free government bond markets.
The widening of yield spreads on French government bonds can already be seen as an opportunity to enter the market in the euro area. Taking a longer-term view, yields on euro bonds can generally be expected to fall.
bonds
bonds
Source: Bloomberg Finance L.P., Raiffeisen KAG, as of: 28 Jun 2024
Outlook – Global Equity Markets
Equity market: signs of overheating and limited price potential
Bucking the statistical trend, June was a positive month for the equity market, and was even very, very good for some parts of the market (US growth and tech sector shares). It should be noted, however, that the recent price developments stand in sharp contrast to the deteriorating macro data. Sentiment indicators point to some overheating on the equity market, while technical indicators reflect significantly overbought conditions. That said, the uptrend was confirmed once again by the new highs. Consequently, in order for any major market correction to occur there will have to be a triggering factor, and no such factors are visible at present. However, the next round of quarterly corporate data will soon be released, and the bar is already set very high, in particular for AI technology shares. If the top names in this field are no longer able to meet the expectations, there could be at least a temporary correction. And with an eye to the prevailing price levels, the current price targets for year-end only reflect limited potential.
With due regard to this, the previous tactical equities overweighting is now lowered to neutral, thus securing the price gains generated on the equity market. In the second half of the year, disregarding the geopolitical developments, the future potential on the equity market will depend on the economic performance, earnings growth, and rate cut speculations.
Estimated earnings growth (next 12 months), in %
Source: Bloomberg Finance L.P., Raiffeisen KAG, as of: 28 Jun 2024
Outlook – Regional Equity Markets
Selective tactical overweighting and underweighting
Over the short term (tactical), we shifted the US overweighting to neutral in July and are now overweighting Europe instead. The Pacific region is also still overweighted on tactical considerations. Global Emerging Markets are now underweighted again. From a regional perspective, we do not see justification for the massive outperformance in the USA and the pronounced weakness in Europe. Over the short run at least, we also see the performance of the tech-heavy EM indices as being exaggerated and we currently do not yet expect to see a durable turnaround in the trend. For 2024 as a whole, we still anticipate that the equity market trend will become “broader” over the medium to longer term, in particular if the global economic upturn from the spring continues, with more and more sectors and industries participating in it.
Strategic Asset Allocation
The Strategic Asset Allocation refers to the assessment of the various asset classes over a long-term horizon.
A model-induced increase in euro equities was undertaken in Q1 2024. At the beginning of March, we took profits on euro equities and Japanese shares while adding Chinese shares as new investments in the portfolio. We have positions in European equities, EM equities, and Japanese equities. US equities remain unattractive, with an eye to the valuations.
We made significant purchases of government bonds in recent quarters (last move in April), starting with non-euro bonds and then also European government bonds.
In the middle of December, we slightly reduced our positioning in the interest rate segment due to the yield declines. We bought into US interest rate risk again in the middle of April after the latest yield increases.
After substantial spread narrowing over the last months, we reduced corporate bonds (IG and HY), Italian government bonds, and hard-currency EM bonds at the beginning of March. We bought French government bonds at the end of June. We took profits on EM currencies in several steps in 2023.
*all statements refer to the SAA of the funds Raiffeisen 337 – Strategic Allocation Master and Raiffeisen-GlobalAllocation-StrategiesPlus.
Source: Raiffeisen KAG, as of July 4th 2024; this forecast/estimate is no reliable inference to the future performance.
In September 2023, we used the strong performance of energy commodities to reduce investment. Along with positions in inflation-linked bonds, we also have positions in the commodities sectors (via derivatives on materials indices), precious metals, industrial metals, and energy commodities.
Taktische Asset Allocation July
The Tactical Asset Allocation steers market-oriented mixed funds such as the Raiffeisen strategy funds over the short to medium term. The positioning of the fund management can differ from that of other capital market analysts (e.g. Raiffeisen RESEARCH GmbH).
■ Economy: US economy cooling a bit, mostly negative surprises at the global level; inflation continues to decline, albeit more slowly; following the European Central Bank (ECB) the next rate moves will follow in September (by the US Fed as well)
■ Corporate sector: corporate reports and earnings outlooks are supporting the market; however, the temporary phase with positive global revisions is over; increasing profit momentum is anticipated at the quarterly and annual level
■ Sentiment: sentiment indicators deviating from the slightly gloomier overall situation; (US) equity market recently advanced to a string of new highs, confirming the trend; however, market breadth is lower again and cyclical components are weaker
■ Special topics: monetary policy; geopolitics; massive election year in 2024
■ Positioning: neutral global equities versus euro government bonds (short-dated) neutral weighting (previously overweighted)
Indicators – Overview Of Market Development
Source: Bloomberg Finance L.P., 28 Jun 2024, YTD = change compared to previous year-end; past performance is not a reliable indicator for future development. Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”)
all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement. merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the
in no event shall any MSCI Party have any
for any direct, indirect, special,
(including,
or any other
(www.msci.com).
Disclaimer
This document was prepared and edited by Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Vienna, Austria (“Raiffeisen Capital Management” or “Raiffeisen KAG”). Despite careful research, the statements contained herein are intended as non-binding information for our customers and are based on the knowledge of the staff responsible for preparing these materials as of the time of preparation and are subject to change by Raiffeisen KAG at any time without further notice. Raiffeisen KAG assumes no liability whatsoever in relation to this document or verbal presentations based on such, in particular with regard to the timeliness, accuracy, or completeness of the information presented and the sources of information, or in respect of the accuracy of the forecasts presented herein. Similarly, any forecasts or simulations of earlier fund performance presented in this document do not provide a reliable indication of future performance. Furthermore, investors with a home currency different than the currency of the fund or portfolio should note that returns can also rise or fall due to currency fluctuations.
This document is neither an offer, nor a recommendation to buy or sell, nor an investment analysis. It is not intended for use in lieu of individual investment advice or other consultation. If you are interested in a specific product, along with your bank advisor, we will be happy to provide you with the prospectus and the information for investors pursuant to § 21 AIFMG, prior to purchase. All specific investments should be made following a consultation and discussion, and after having reviewed the prospectus and the information for investors pursuant to § 21 AIFMG. It is expressly noted that securities transactions can involve significant risks and that taxation of such depends on personal circumstances and is subject to change in the future.The performance of investment funds is calculated by Raiffeisen KAG and that of real estate investment funds by Raiffeisen Immobilien Kapitalanlage GmbH pursuant to the OeKB method, based on the data from the depository bank (in the event that payment of the redemption price is suspended, available indicative values are used). Individual costs, in particular the issue premium, any applicable return fee, and taxes, are not taken into account in calculating performance. Depending on the specific amount, these costs reduce the actual performance accordingly. The maximum amount of the
issue premium and any applicable return fee can be found in the key investor document (key information document) or the simplified prospectus (real estate investment funds). The performance of investment funds is calculated by Raiffeisen KAG and that of real estate investment funds by Raiffeisen Immobilien Kapitalanlage GmbH pursuant to the OeKB method, based on the data from the depository bank (in the event that payment of the redemption price is suspended, available indicative values are used).
Individual costs, in particular the issue premium, any applicable return fee, and taxes, are not taken into account in calculating performance. Depending on the specific amount, these costs reduce the actual performance accordingly. The maximum amount of the issue premium and any applicable return fee can be found in the key investor document (key investor information) or the simplified prospectus (real estate investment funds). The performance of portfolios is calculated by Raiffeisen KAG in time-weighted terms (timeweighted return, TWR) or in money-weighted terms (money-weighted return, MWR) [refer to the presentation section for details] based on the last known market price or foreign exchange rate or information available via securities information systems. Past performance is not a reliable indicator of the future performance of an investment fund or portfolio. Performance is expressed in per cent (without fees) assuming the reinvestment of all dividends. The German-language versions of the published prospectuses and the information for investors pursuant to § 21 of the Austrian Alternative Investment Fund Managers Act (Alternative Investmentfonds Manager-Gesetz, AIFMG) as well as the key information documents for the funds of Raiffeisen Kapitalanlage-Gesellschaft m.b.H. may be downloaded from the “Kurse und Dokumente” section of the website www.rcm.at (for some funds, the key information documents may also be available in English). Alternatively, where units are sold outside of Austria, these documents may also be downloaded from the “Kurse und Dokumente” section of the website www.rcm-international. com in English (or possibly German) or else the language of your country. A summary of investors’ rights in German and English is available via the following link: https://www.rcm.at/corporategovernance. Please note that Raiffeisen Kapitalanlage-Gesellschaft m.b.H. has the right to terminate the arrangements made for the distribution of fund unit certificates outside of the fund’s country of domicile, Austria.
Imprint: Reproduction of the information or data, in particular the use of texts, text sections, or graphic material from this document, requires the prior written consent of Raiffeisen KAG.
Media owner: Zentrale Raiffeisenwerbung
Publisher, produced by: Raiffeisen Kapitalanlage-Gesellschaft m.b.H., Mooslackengasse 12, 1190 Vienna
Partner And Memberships
The Net Zero Asset Managers initiative
Contact
Stay tuned!
You can find further updates as well as interesting articles about the market development on our homepage
Raiffeisen Capital Management is the umbrella brand for:
Raiffeisen Kapitalanlage GmbH
Raiffeisen Immobilien Kapitalanlage GmbH
Raiffeisen Salzburg Invest GmbH
Mooslackengasse 12 1190 Vienna, Austria
t I +43 1 711 70-0
f I +43 1 711 70-761092
e I info@rcm.at www.rcm-international.com
Please consider your environmental responsibility before printing