The positive trend for risk assets observed since the beginning of the year extended throughout February. The MSCI World Index in local currencies gained another 3.2%, bringing the year-to-date performance up to 11%. The spreads of credit and emerging market debt also continued to contract, with high-yield bonds now having erased most of their losses of November and December. Logically, the more defensive assets such as government debt and gold ended the month on a weaker note, with yields moving higher and the price of gold dropping back to its end 2018 level. The major currency crosses evolved within tight ranges to remain little changed so far this year.
What a difference a month makes! For investors gripped by fear during the manic month of December, January provided a much-needed relief rally of risk assets. Global equity markets had their best month since October 2015, with a 7.7% gain for the MSCI World Index, and credit spreads dropped back to end-November levels, or even lower. Commodity prices also rebounded, lead by oil and industrious metals. In foreign-exchange markets, emerging markets and commodity-related currencies performed the best. In this environment, it is also worth noting the positive performance of more defensive assets, including government debt and gold.
Citywire’s ‘Top50 Independent Asset Managers’ looks at some of Switzerland’s largest independent wealth managers, which manage combined client assets in excess of CHF 130 billion. Undoubtedly, to emerge as one of the top players in the field is a challenge.
Global financial markets were affected badly by the geopolitical landscape
In the wake of the unusually smooth financial markets observed in 2017, the past year has been a quite dramatic wake-up call for investors. Early-year euphoria in equity markets gave way to rising anxiety, due not only to economic and political issues, but also to extreme market behaviour.
If the U.S. economy was by far the brightest spot, reflected by outstanding corporate profits, a deceleration of growth was observed across other regions, in China and Europe in particular. This weaker economic trend was compounded by the escalating impact of the trade war led by Donald Trump on the rest of the world, with China being his main target. Financial markets were also affected by a number of political uncertainties which proved to be more detrimental than was the case during the previous years; the resolution of some of these issues are among the key factors for an improvement of the fragile sentiment currently prevailing in the markets.
November was another volatile month for equity markets as they experienced big swings in the wake of the October rout. They did manage to post positive monthly returns across most regions, nevertheless, with EM equities faring the best. It was another tough month for some big U.S. names such as Apple and Facebook, which were down by 18% and 7% respectively. Within other asset classes, government bonds saw their yields decline, high yield spreads widened significantly whereas the price of oil dropped by 22%. The major currencies ended the month relatively unchanged as did the price of gold.
October lived up to its reputation of being a volatile month for equity markets reflected by the 7.9% drop of the MSCI World Index, in local currency terms. The rout was widespread as stock markets across the world were hit by fears over slowing growth, trade wars and higher interest rates. For once, American equities failed to offer any additional resistance than the other markets and a number of technology favourites, such as Amazon and Netflix, suffered from heavy selling. The fall of the equity market showed a lot of similarity to the one that took place in late January/early February; equities suddenly dived following a period of fast rising Treasury yields whereas safe haven assets did not benefit that much from the sell off; 10-year Treasury yields ended the month 8bps higher and the price of gold appreciated by less than 2%.
Global equity markets ended September with modest gains following a weak start to the month. For once, Japanese equities were the outperformers while emerging market equities showed some signs of stabilisation, even if ending the month a little lower. A higher appetite for risk was reflected by the rise of the safest sovereign debt yields and a tightening of spreads for high-yield and emerging market bonds (- 38bps on the J.P. Morgan EMBI Global Spread Index). As to be expected in such a context, the Swiss franc and the Japanese yen depreciated against other major currencies.
In the last issue of Citywire magazine, our fund manager Mikhail Myakishev shares with you his point of view on Asian equities.
Asian equities play an important diversification role within our emerging market exposure, because the region has historically been a strong performance contributor, despite occasional periods of high volatility.
August was a mixed month for global equity markets as the MSCI World Local Currency Index’s 1.1% gain was only the result of higher U.S. equity prices; in contrast, the Euro Stoxx 50 Index lost 3.8%, the Topix 1% and the MSCI EM Index 2.9%, in dollar terms, due to concerns about the ongoing trade dispute and the stress in emerging markets. This higher aversion to risk was also reflected by the significant strength of the Swiss franc, which appreciated by 2.9% against the euro, and by lower yields on U.S. Treasuries and Bunds. Emerging market bonds were badly impacted by EM currency weakness, with the J.P. Morgan EMBI Global Spread Index widening by 46bps to 400bps.
July was a strong month for global equity markets as the MSCI World Local Currency Index gained 3.1%, with positive performances recorded across most regions. Concerns about the trade war took a back seat as investors focused on the supportive reporting of second quarter earnings, especially in the U.S. This higher appetite for risk assets was also reflected by the rise of sovereign debt yields, with that of the 10-year U.S. Treasury note moving back close to 3%, and gold continuing to drift lower.
In this mid-year publication, we review our January expectations and analyse some current key economic indicators before outlining the asset allocation that we recommend for the second half of the year.
Our portfolio positioning at the beginning of 2018 was somewhat cautious, with an above-average level of cash and a modest overweight exposure to the equity asset class. We contended that 2018 would be a more challenging year for equities and this has greatly proven to be the case. Our expectation that bond yields would gradually rise has been vindicated in the case of U.S.Treasuries, but not for core European bonds.
We refrained from deploying any cash towards equities during the spectacular January rally as we felt that markets had become overbought and investors too bullish. With traditional assets struggling to produce positive returns in the current unstable market conditions,the role of alternative strategies has taken on more importance, as a source of uncorrelated performance and to strengthen the resilience of portfolios.
Geneva, 20 June 2018. Geneva-based wealth management company The Forum Finance Group has announced the appointment of Jean-François Andrade as a partner. He joins Etienne Gounod, Philippe Kern, Egon Vorfeld and Hippolyte de Weck after Hervé Chanut's retirement as equity partner, but who remains Chairman of the Board of Directors. Jean-François Andrade joined Forum Finance in 2013 from Pictet & Cie.
Jean-François Andrade began his career in 1999 with Banque Privée Edmond de Rothschild as junior portfolio manager and assistant to the CFO. After several positions in wealth management at various financial institutions, he joined Julius Baer in 2004 as asset manager, then Pictet Wealth Management in 2008, where he worked for 5 years in the Latin America team. In 2013, he left Pictet & Cie for The Forum Finance Group with Philippe Kern and Lucia Bruel.
Jean-François Andrade holds a Master HEC from the University of Geneva.
"We are delighted to welcome Jean-François Andrade to the partnership. This decision is in line with the policy we defined a long time ago. Indeed, some 22 years ago, we put in place solid governance, with several generations of partners who ensure a smooth handover. We are thus offering a genuine long-term entrepreneurial project to attract talented managers who wish to join a human-sized project with which they can identify," said Etienne Gounod, Managing Partner and CEO of Forum Finance.
Founded in 1994 in Geneva, Forum Finance employs around 20 people who manage and supervise approximately CHF 1.5 billion in assets. In April 2018, Forum Finance announced its diversification into asset management with the launch of a strong conviction global equity fund. Under an LPCC license, the company is regulated and supervised by FINMA and is registered with the SEC.
May was eventful as an early-month rally of equity markets was derailed by a flare-up of political and geopolitical risks, with Italy being in the eye of the storm. Safe haven assets, including U.S. Treasuries, Bunds, the Swiss franc and the yen, rallied whereas the ongoing appreciation of the dollar accelerated. Emerging markets’ assets remained under pressure due to a mix of rising Treasury yields, a stronger dollar as well as idiosyncratic issues in countries such as Turkey and Argentina. Global financial markets were also impacted by geopolitical headlines related to the tensions over trade between the United States and China, the U.S. pull-out from the Iran nuclear deal and the holding or not of the U.S./North Korea summit.
A number of trend reversals were observed during April as European equities outperformed and as the dollar started to rebound; G-7 sovereign debt also returned to its early-year trend of rising yields, with U.S. Treasuries recording the steepest moves. When looking at year-to-date returns of regional equity indices, European equities have more than made up their underperformance relative to U.S. and emerging markets. Part of this catch-up can be explained by the rebound of the dollar, which appreciated by 2% against the euro during April. Japanese equities also performed well during the month as the Topix Index gained 3.6%, helped by the 2.8% depreciation of the yen vs. the dollar.