The members of Isag* met on November 27 to discuss their economic perspectives and investment strategies. The debates focused on the consequences of the American election for the global economic trajectory, inflationary pressures and the evolution of financial markets.
The “goldilocks” scenario, largely in the majority, was almost unanimous. In 2025, US economic growth should be dynamic enough to allow companies to generate profits, without being so strong that inflation prevents further monetary policy easing of up to 3.5%. -4.0%. In Europe, the outlook is bleaker. Hopes of a rebound could be reborn, particularly if the German elections lead to a fiscal stimulus. Recent data confirms that the European Central Bank (ECB) and the Swiss National Bank (SNB) could opt for caution, despite markets’ calls for significant monetary easing.
On the bond side, profit-taking in the investment grade and long duration segments was notable. The vast majority of strategists prefer to opt for significant exposure to the credit market. The search for yield attracts them towards AT1s, “cocos”, hybrids and other CLO’s, which offer a better compromise between yield and security than high yield bonds.
Generally speaking, the “risk on” feeling dominates. The allocation remains overweight in equities for most strategists. The level of valuations is not a cause for concern, as it reflects rational optimism about double-digit earnings growth next year. American stocks retain a dominant position, although experts note an excessive concentration on large technology caps. A partial reallocation towards mid-sized American companies is carried out. At the same time, defensive sectors, considered undervalued, are gradually being considered, thanks to a bias towards Switzerland, the United Kingdom, and even the Nordic countries.
Asian markets, particularly China, give rise to divergent opinions. On the one hand, the recovery plan is likely to increase consumer confidence. On the other hand, the slow pace of economic reforms and geopolitical uncertainties call for caution.
The appreciation of the dollar remains at the center of discussions. If the expected easing of the Federal Reserve (Fed) should theoretically weaken the greenback, the relative robustness of the American economy favors its appreciation. The euro struggles to convince as Europe gets bogged down, the yen falls again, while the Swiss franc continues to be favored by currency traders, despite comments from SNB President Martin Schlegel on the means at his disposal to weaken it. On this subject, strategists believe that the SNB will have more interest in intervening in the foreign exchange market than in lowering its key rate.
Gold retains a strategic place in portfolios, despite profit-taking following its meteoric appreciation. It is used to protect portfolios, alongside alternative funds.
Isag members display high optimism, while emphasizing the need to take advantage of low volatility to deploy protective strategies. Strategic diversification and a flexible tactical approach are considered essential to navigate 2025.
*The Investment Strategist Association of Geneva (Isag) brings together the CIOs and chief economists of around twenty financial establishments based in French-speaking Switzerland. “L’Agefi” publishes their investment views every quarter.
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