Quarterly Outlook, Q3 2024

Elections and Financial Markets

Just as the French were getting ready to buy tickets for the Olympic Games, or at least turn on their TVs, Emmanuel Macron's surprise dissolution of the French parliament in the wake of the European elections stole the headlines from the French press, and often from the economic news of the Eurozone. Markets quickly adjusted. The CAC dropped 6.5% compared with a 2.3% drop for the European benchmark (STOXX600), theeuro lost 1.5% against the Swiss franc, and the yield spread between German and French debt widened from 50 basis points to 80 basis points. At the other end of the spectrum, the US market is in insolent health, and the stock market craze surrounding Nvidia continues. One of this month's lessons is that the political factor we feared in 2024 is making a comeback, but not necessarily where we expected it. This risk is likely to bring well-established stock market trends to a halt. All the more reason to remain cautious in terms of allocation and, rather than chasing certain themes in the general euphoria, to start considering some of the "collateral victims" of the current environment. We develop some of these ideas in this investment letter.

Monthly Newsletter, June 2024

Cycle and Seasonal Effects

Despite a few bumps at the end of the month, May ended on a solid note for many asset classes. Equity markets soared to new highs, led by the major US indices; the S&P500 and Nasdaq100. Chinese equities, which have long been forgotten by the current bull market, look as if they are finally waking up. Commodities, most of which came under severe pressure in 2023, are not to be missed, and are experiencing a major rebound this year. Fixed Income markets, still disappointing this year, are nonetheless enjoying a slight upturn as long-term rates stabilise. So “sell in May and go away”? Although tempting on paper, this strategy rarely paid off, as it involves getting both exit and reinvestment timing right. As often reminded, missing one or more of the year's best sessions is particularly detrimental to compound performance over the long term. Also in a world of rising inflationary pressures, it is worth considering that equities and commodities remain the most effective long-term “weapons” to shelter returns from inflation, provided good diversification and picking strategies within these asset classes. We are detailing these ideas in this newsletter.

Monthly Newsletter, May 2024

When history rhymes…

In the not-too-distant past, when Alan Greenspan was still playing the Sphynx at the Federal Reserve, the Fed model was very much in vogue. Younger readers who have only been following the markets for a couple of decades may be unfamiliar with this partially obsolete concept. The idea behind the Fed model was to compare the S&P500 earnings yield* with the US 10-year yield. This provided an indication of the relative attractiveness of one asset class versus another. When 10-year yields are higher than earnings yields, bonds are more attractive than equities; when they are lower than earnings yields, equities should be preferred. In the short term, the crossover between earning yields and 10-year yields surely sends a cautious message: US equities have gone a little too fast compared with fixed income and we could see a return to the mean. It also reflects the fact that the S&P500 behaved like a two-speed market: to the stellar performances of the Magnificent 7 – or should we say Magnificent 5 – we could oppose the more mixed results of the rest of US markets. In the longer term, the picture is more varied: the weakness of the US fixed income market, and the fact that US Treasuries are reacting less effectively as a “risk-off” asset, points to a more structural reality: the level of US indebtedness, hitherto unaffected by the appetite of debt buyers, is approaching a threshold that prompts more circumspection about government bonds, especially at a time inflation fears could make a comeback. We are detailing these ideas in this newsletter.

Quarterly Outlook, Q2 2024

Time to question US exceptionalism?

This political theme, inspired by the theory of manifest destiny, starts from the premise that the United States, because of its history and its democracy, has a special role to play in the Concert of Nations. Rarely has this set of ideas seemed so topical either from a geopolitical, economical or market standpoints. We are coming back on these subjects in  greater detail in our latest quarterly outlook and for the first subject  in the geopolitical report recently issued in partnership with an intelligence and advisory firm. As far as financial markets are concerned, March has proved rather encouraging, with the market’s performance broadening : Gold, Japanese equities, S&P500 Equal Weighted, European cyclicals and even industrial metals... These factors are all reasons to hope for a slightly more balanced macroeconomic scenario and broader participation across asset classes, geographical zones and styles.

GEOPOLITICAL INSIGHTS, YEAR 2024

Geopolitical flashpoints and potential outcomes

The last few years has seen quite a number of events which have resonated across all regions of the globe. Groupe Eric Sturdza has commissioned Herminius, the UK-based intelligence and advisory firm, to provide their geopolitical insight into what is happening in regards to Russia and Ukraine, Middle East, and other regions , providing their views on the situation holds for the rest of the year, beyond the newspaper headlines. The rationale behind commissioning this report was to get a different perspective of where the global risk and flashpoints may be and what potential outcomes could evolve over the next year. These ideas are developed in greater detail in this report.

Monthly Newsletter, March 2024

Wild West Ride

There are some parallels between the markets we’ve just lived through and the Wild West Ride. February’s equity markets extended the advances that started in November 2023, even though macro signals are deteriorating, with plateauing inflation, long rates on the rise again, and drastic adjustments to rate cuts expectations (from six to three cuts) in a matter of weeks. In this environment, maintaining a neutral but differentiated portfolio approach seems wise. Asia remains promising, with the rerating of Japan not complete and with China finally showing some signs of stabilization. In the United States, if some similarities can be drawn with the IT bubble, the strong results and outsized profitability of US tech champions also underline significant differences with today. With more stretched valuation and sentiment indicators, a short-term market pause would be healthy. Finally, as rate cut expectations have adjusted, fixed income looks a more attractive asset class compared with a few months ago. We are detailing these ideas in this newsletter.

Monthly Newsletter, February 2024

Once again?

This adage comes to mind in January, as this first month of 2024 saw the pursuit of some of the trends seen last year, either with rising long term rates, or the continued slide of the Chinese economy, not to mention reinforcing concentration of the US market around the “Magnificent Seven”. While the start of the year might suggests that, in many respects, 2024 is shaping up to be a repeat of 2023, the underlying situation looks very different: Central bankers have pivoted, and even if investors’ rate cuts expectations were overly ambitious late last year, the direction is clear. The still-dominant “Magnificent Seven” group seems less impressive individually. Finally, with the events in the Red Sea and the first elections of the year, January marks the return to centre stage of political and geopolitical risks that we will have to factor more in our investment thinking in 2024. We are detailing these ideas in this newsletter.

Quarterly Outlook, Q1 2024

Disappointed in a good way?

One year ago, investors were dreading the arrival of a difficult 2023 against a backdrop of high inflation and a probable slowdown or even recession in the United States. However, neither geopolitical factors nor a major banking crisis managed to break US momentum. At nearly 2.5% for the year, US growth has more than held its own... The world’s major indices are up 20%, and the US stock market is doing even better, with a 24% gain for S&P500, (even if its Equal Weighted version is posting a more modest 11.5% rise). 2023 will have “disappointed in a good way”, but even the most optimistic forecasters will have been left in the lurch by the strength of the markets. In this euphoric phase, Asia excluding Japan is the exception, heavily penalized by the Chinese market. Throughout the year, the fixed income world was also very turbulent and more than ever, markets remain dependent on central bank policy and rate expectations. We have always believed this, and looking ahead to 2024 it’s essential to form an opinion on anticipated rate cuts. In this quarterly newsletter, we are discussing this topic and its implications, as well as our outlook in greater detail.

Monthly Newsletter, December 2023

This is undoubtedly the image that springs to mind this November. After suffering in recent months from the rapid rise in US long term yields (with the US 10-year yield even approaching the significant 5.0% threshold in October), financial markets are celebrating the easing in long-term yields seen this month. Financial markets like to surprise investors by swinging from one extreme to another. Although we indicated in our previous letter that we were becoming more favorable to the duration idea, the speed of long term rates’ easing prompts us to keep the same calls, albeit with some caution: 1- A renewed appetite for bond markets as a carry strategy, and also increasingly for the benefits of duration ; 2- Maintaining a diversified equity portfolio by supplementing the US exposure with other geographical regions, notably Asia; and 3- Favouring a “barbell” strategy that seeks to balance growth stocks with value sectors. We are developing these ideas in this newsletter.

Monthly Newsletter, November 2023

Unprecedented 3rd consecutive year of negative bond returns and “Déjà Vu” on equities.

After a compelling start to the year for financial markets, the last few months proved far more complicated. Long-term yields are on the rise again, with the US 10-year yield briefly touching 5.0% this month, a level not seen since 2007. In its wake, the phenomenon of rising long rates is spreading to other regions of the world, such as Europe. In an uncertain geopolitical environment, with disappointing performances in both bond and equity markets, and the extreme polarisation of equity markets, we maintain a cautious stance and are building our portfolios around a few key ideas: Maintaining a diversified allocation betweenrisk assets and safe havens against a backdrop of geopolitical uncertainty, renewed appetite for bonds for their carry and also increasingly for duration, and a barbell” equity portfolio complementing growth stocks with more value-oriented sectors. We are developing these ideas in this newsletter.

Quarterly Outlook, Q4 2023

The Old and New World

After quite an unsatisfactory summer for equity markets, September continued the sluggish downward trend, with significant declines even for the market’s darlings. Even the flamboyant NVIDIA in the United States and LVMH in Europe are marking time. Analysts, most of whom had been overly cautious at the end of last year, are swallowing their hats and - more or less discreetly – raising their end-of-year targets for the equity indices. After all, it has to be said that growth was slightly better than expected, and corporate results for the first half were satisfactory. The soft landing is very mild indeed, and the oft-touted recession has not yet materialized, even if a few cracks are starting to appear. The most surprising factor in this configuration remains the behavior of long term rates. US yields are at record highs, explaining the current pressure on financial assets. In a new world resembling the old one of double-digit interest rates, , we'd be wary of taking on too much by building portfolios around two strong ideas : A renewed appetite for bonds for their carry and a ‘barbell’ equity portfolio: complementing growth stocks with more value-oriented sectors. We are developingthese ideas in this newsletter.

Monthly Newsletter, September 2023

A Summer of paradoxes…

Nervous investors often look ahead to August with some anxiety. In tight markets where liquidity is limited due to a lack of participants, a single disappointing economic statistic or a piece of information widely reported in the media can have a disproportionate impact. In this respect, this August was no exception. Indeed, it’s hard to ignore the anxiety-inducing natureof media coverage predicting the upcoming economic collapse of China against the backdrop of a severe real estate crisis. It's also hard to overlook rising US long-term rates, which is taking the US 30-year yield to a level not seen since 2011. These elements cast a sometimes paradoxical light on the markets, and lead us to share our reading of them in this newsletter. Yes, the inflation peak is probably behind us, but that doesn’t mean that inflation is fully under control and that the Autumn may not hold a few nasty surprises. Yes, the most likely scenario in the short term is that of a soft landing in the United States. A recession cannot be ruled out in the medium term though, in which case the duration we are loathing today could prove useful. Yes, China is disappointing, the economic slowdown is real and the real estate crisis a true risk, but these factors also offer hope, encouraging the Chinese authorities to do more. Finally, while an economic slowdown seems largely priced in for Chinese assets, this is far from being the case for all assets, some of which continue to be priced for perfection. For us, these are all points to watch out for as we head back to work.

Monthly Newsletter, August 2023

A breath of fresh air in the Summer heat…

Last month, we warned of 2023’s peculiar nature, which seemed to have only three winners: the Federal Reserve in its battle against inflation, the Japanese market outperforming in local currency after decades of subpar relative returns and, of course, the ‘Magnificent 7’ (the FAAMGs – Facebook, Apple, Amazon, Microsoft, Google - + NVidia and Tesla), who were behind the US market’s spectacular rise. With such monomaniacal markets, the summer promised to be quite boring... but on the contrary, this month has been particularly instructive and less monotonous than anticipated. The soft landing of the US economy in 2023 and the end of the rate hike cycle are precising. Japan is asserting itself as a promising investment theme, but investors will have to count on a currency effect that will no longer necessarily be negative. China is (finally) waking up! In short, markets’ breadth improved with increased participation (stocks, sectors, geographies and styles), a signal that is all the more encouraging in that it is not accompanied by a collapse of the previous leaders, but one that will need to be confirmed in the months ahead. We are discussing the different topics in our latest newsletter.

Quarterly Outlook, Q3 2023

The winner takes it all…

The first quarter of 2023 was marked by the banking sector’s crisis, specifically the woes of medium-sized banks in the US and the collapse of Credit Suisse on this side of the Atlantic. The determination of central banks and lightning bailouts enabled us to move on quickly allowing the second quarter to highlight three winners: the US central bank, the US technology sector and the Japanese market. There are only three steps on a winners’ podium, yet we should also have mentioned the credit markets, which are making headway. High yield, in particular, has made good progress in recent months (around 5% since the start of the year in Europe). We had been increasing our portfolios’ exposure to Investment Grade credit since last summer notably for USD based portfolios, but bonds as a whole still seem interesting to us, and after this major stock market rally they offer an even more attractive risk/ return profile. The Fed’s timetable, now clearer and better integrated by the markets, will enable us to gradually lengthen duration. There is time to let the markets settle into Andrew Mellon’s motto: gentlemen prefer bonds! We are discussing the different topics in our latest newsletter.

Monthly Newsletter, June 2023

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.” – Bill Gates

This quote from Bill Gates, itself inspired by Amara’s law on the effects of technological changes, echoes the events of May. Indeed, the US markets ended the month on a positive note, buoyed by the hope of a last-minute deal between Republicans and Democrats to raise the US debt ceiling, and by the hype surrounding Artificial Intelligence (AI) following the stellar results released by Nvidia, the leading chip manufacturer. In this environment, we maintain a relatively cautious approach: Yes, technical default and US shutdown should be avoided. Yes, AI could become the fourth industrial revolution. But complacent markets, concentration issues and too much of a hype around AI lead us to adopt a more cautious tactical balance, with a more favorable long term view and selective investment opportunities. We are discussing these different topics in our latest newsletter.

Monthly Newsletter, May 2023

Growing divergence

After a hectic March, this month’s results appear almost boring: long-term rates ended almost unchanged at 3.52% for US 10-year Treasuries, the S&P500 and the Nasdaq100 are digesting their YTD appreciation, Chinese equities are down despite the fact that China is offering more compelling macro prospects. Macro and microeconomic data are starting to materially diverge from financial markets’ reactions. This leads us keep a cautious bias in our allocations: maintaining our diversification, using favourable volatility to strike new equity hedges, and keeping a balanced exposure to growth stocks that are buoyed by falling interest rates and others less sensitive to this theme. We are discussing the different topics in our latest newsletter.

Quarterly Outlook, Q2 2023

How did you go bankrupt ? Two ways. Gradually and then suddenly

As March ended, a month marked by the failures of Silicon Valley Bank and Signature Bank, as well as the precipitous takeover of Credit Suisse, Ernest Hemingway’s famous dialogue in The Sun also risesrarely seemed so appropriate. And yet … The results of the past quarter look reasonable. Long-term interest rates eased (the US 10-year is at 3.55% compared with 3.85% at the start of the year), oil fell while equities rose with - as is often the case - significant discrepancies. The Nasdaq and the large technology companies are soaring (+20% year to date), Europe is outperforming (+7.8% for the STOXX600 against +7% for the S&P500) and China, although recently reopened, still lags. Still, we should not forget that the easing of monetary conditions, mentioned in the first part of this article, was only due to a series of banking crashes. As contradictory as it may seem, the recent surge in technology stocks, which are very sensitive to rates, is the direct result of the collapse of a bank dedicated to funding technology stocks and startups! One more “conundrum” and an incentive to keep exposures balanced between growth stocks, supported by the fall in rates, and others, less sensitive to this theme. We are discussing these recent events as well as their implications for our investment strategy in this newsletter.

Monthly Newsletter, March 2023

Not so fast …

After last month’s strong rebound, the performance of financial markets stalled in February in a consolidation move that spared very few asset classes. This situation echoes the cautious message we delivered last month in the wake of a strong and sudden rebound. Sadly enough, February 23 also marks the anniversary of the Russian invasion of Ukraine: a “special operation” that was supposed to last only a few days or weeks and which is now a year old war and projected to last for the foreseeable future. Although the investment environment appears healthier and more promising after the 2022 reset, February reminds us that caution is a given, most notably in a macroeconomic context depressed by persistent inflation and with the ongoing war in Ukraine. The year 2023 could remain volatile and correction episodes should be used as selective opportunities to reposition portfolios, especially for investors that missed Q422 rally.We are discussing the different topics in our latest newsletter.

Monthly Newsletter, February 2023

Fast and Furious …

Financial markets are getting off to a strong start in 2023, with a solid and simultaneous rebound of major asset classes. This is a sharp contrast with 2022, when both equity and fixed income markets fell sharply. There are many ways to explain such a reversal and we are spending some time in this newsletter to address the main ones and our expectations for them. After a challenging 2022, January 2023 was a good one for investors patient enough to stay invested. This “fast and furious” rally leaves us a bit circumspect. The year is long and caution is warranted. Though reasons for hope should not be downplayed - China, disinflation, the FED’s pivot, more attractive valuations in some markets and segments… - some of these factors may already be priced in.

WEALTH PLANNING NEWSLETTER, January 2023

On the utility of wealth structures

Personalised services have always been at the heart of Eric Sturdza Bank's proposition. In order to deal with increasingly complex situations, the Bank relies on its expertise in Wealth Planning to meet the ever more specific expectations of its clients. Wealth Planning is an essential part of our holistic approach. In this new issue, we asked our expert to shed light on the various types of wealth structures, their relevance in a context of increased transparency, their advantages and the traps to avoid when using them.

QUARTERLY OUTLOOK, Q1 2023

Back to the Future ?

2022 has come to an end. For investors and their “famous” 60/40 portfolios (60% equities, 40% bonds), it will surely remain one of the most destructive years of the past decades. Without any doubt, they are looking forward for the reset that the beginning of a new year represents performance wise. One observation remains encouraging, however: Years such as 2022 in which both equities and bonds fall concomitantly are quite rare. There have only been 13 occurrences in the past 150 years! In the year that followed, bonds fell in only 2 out of 13 cases and equities in 3 out of 13 cases... In these periods of limited visibility, such favorable figures are a comfort to keep in mind when time will come to increase our equity exposure in the coming months. In this quarterly newsletter, we are discussing past year events, our macro scenario and our outlook in greater detail.

Monthly Newsletter, December 2022

When inflation comes down…

November was a busy month : Mid-term elections resulting in a split Congress between Democrats and Republicans, a G20 meeting in Indonesia that saw Joe Biden and Xi-Jinping reengaging, and a rebound in Chinese equities fueled by hopes of a gradual end to the “Zero-Covid” policies and newly announced support measures for the Real Estate sector. This is without mentioning the major factor that was the release of sequentially lower and better than expected inflation figures. We are discussing these topics in this newsletter. The year 2022 is not yet over and we are already getting the feeling that 2023 could also prove quite volatile. Stagflation risk may be followed by Recession risk. All of this must be factored into how we build our portfolios for the year ahead: Increased allocations in fixed income plus hedge funds after years without, more contrarian geographical choices and seeking out trading opportunities. Quite a schedule ahead!

Monthly Newsletter, November 2022

History does not repeat itself but it rhymes

It is too early to draw full conclusions over 2022, but the adage takes on its full meaning as a number of events experienced this year are presenting some similarities with historical ones : Cold War with its tensions between Russia and the USA, the Mao Zedong era with Xi-Jinping consolidating his power, the stagflation of the 70s and Paul Volcker’s rate hike cycle in the early 80’s ... In this newsletter, we are drawing historical parallels and trying to find lessons from the past. The most important one would be in this difficult environment to stay true to our convictions without complacency and to refrain from succumbing to herd effects. YES, the USD had good reasons to be strong, but not all of them were obvious earlier in the year and the USD has rarely been so overvalued... YES, investing in China had never seem so disappointing and frightening in light of increased political risk and poor performances, but Chinese authorities also need a robust economic growth to ensure social stability and Chinese assets seem to already discount a lot of bad news. YES, the recession risk is high in Europe with potential energy rationing, but European cheap stocks’ valuations are also partly reflecting this risk.

QUARTERLY OUTLOOK, Q4 2022

Keep at it

In our last column, we mentioned the fact that market participants were undoubtedly going too fast in judging that inflation would soon be under control. On September 13th, the release of the Core CPI (Consumer price index excluding food and energy) up 0.6% for August and 6.3% year-on-year dashed the hopes of the most optimistic... and equity markets. Without surprise, Jerome Powell announced a few days later a 0.75% rate hike and “pre-announced” that two more hikes were in the pipeline: It will take time to curb inflation. Historically, interest rates have been an important explanatory factor of asset prices in general and stocks in particular, but today they have become THE key driver. This is not encouraging for the asset allocator: rising interest rates weigh on multiples and – when led too hastily – they slow down the economy, causing ultimately its fall into recession. Addressing this thorny issue also means considering how this scenario is reflected in various asset prices. After the annus horribilis experienced in fixed income markets and the subsequent rise in yields, the recession seems to be largely priced in bonds, while the answer is less clear-cut on the equity side and deserves to be refined and tempered. These are all elements that we will discuss in more detail in this quarterly outlook.

Monthly Newsletter, September 2022

Summer Heat

July was marked by high temperatures and booming stock markets. With August we are entering a more delicate phase: storms and more nervous markets. Two drivers fueled the early summer rally: an overly cautious initial positioning on the part of investors and a very good earnings season. At the beginning of August, a third favorable factor added to the positive momentum. For the first time in a long time, there were finally some positive surprises on the inflation front! We take the opportunity in this newsletter to come back on these three factors, in order to better understand how markets oscillate between periods dominated by the fear of losing and others dominated by the desire to succeed - Greed and Fear” as market participants used to say - . July marks the end of a period of excessive fear. In that respect, August appears to be a transition month, careful enough not to let the pendulum swing too far and fall into “Greed” territory. The very strong rebounds are more like profit-taking points... The Fed’s fight against inflation is not over. We are waiting for the Jackson Hole summit and the next FOMC without excessive pessimism but aware that the summer rally leaves little room for disappointment.

Monthly Newsletter, August 2022

On the other side of the economic cycle ?

Much has been said about the first half of 2022 – one of the worst for equities and certainly the worst for bonds in the last 30 years – and July will undoubtedly be remembered as well with the best S&P500 monthly return since November 2020 and its best July one since 1939. We are nonetheless staying “reasonably cautious” with regards to our allocations in Europe and the United States. “Cautious” because a recession may already be a given or remain a near-term risk, “Reasonably” as the recent earnings season reminds us the ability to adapt and the resilience even in the most challenging macro environment should not be underestimated for some companies. While continuing to wait for a pivot in the FED’s attitude – that may take some time to happen - we favor areas such as China and Japan where the economic cycle appears desynchronized – hopes for more fiscal stimulus, lesser inflationary pressures and still accommodative central banks - and where, moreover, valuations remain reasonable... We come back to these discussion topics in more detail in this newsletter.

QUARTERLY OUTLOOK, Q3 2022

Which side to choose ?

Much has already been said about the first half of 2022. One of the worst for stocks, one of the worst for bonds and THE worst when combining the two asset classes as in the traditional 60/40 portfolios. As stocks and bonds plunged together, diversification was of no help. At the end of the day, the MSCI world index was down 19.6% and the Global Aggregate bond index was down 9.4%. In an environment where Western economies are split between stagflation and recession risks, we are lukewarm on the US and European markets, and more confident about China. If we were to add a joker to the pack, it would undoubtedly be Japan, where the valuation of companies coupled with a very weak currency make the equity market potentially very attractive. We are discussing these various topics in this new quarterly outlook.

Monthly Newsletter, June 2022

Recession or not?

The question is on investors’ lips as the path ahead depends on the answer to it and as most asset classes have started to adjust to this risk. Rarely indeed has the first part of the year been so bad for diversified portfolios, with equity markets down nearly 13% and bond segments posting their worst performance in 30 years, inflation and rising interest rates notwithstanding. After a shaky start to the month, with fears about global growth and the stalemate in the Russia-Ukraine conflict, the markets stabilized at the end of the month and managed to recover somewhat. The "flight to quality" logic that favors safe haven assets such as government bonds is struggling to materialize in such an inflationary context. In this environment, where visibility remains reduced, we are sticking to the prudent approach outlined in previous months: Strengthening geographic and style diversification in equities, increased focus on medium term USD IG issues in fixed income and a continued active management of currency exposures as well as hedging strategies. We come back to these discussion topics in more detail in this newsletter.

Monthly Newsletter, May 2022

The (hard) return to reality

The rise in US markets in March, while the war was raging in Ukraine, was enough to leave one skeptical... From this point of view, market jitters in April are understandable given the flow of bad news to be digested. Between the stalemate of the conflict in Ukraine, high inflation driven by rising commodity prices, less supportive central banks and a drastic rise in long term rates, there are several relevant concerns not to mention the new lockdowns in China following an upsurge in the COVID-19 pandemic there. We remain focused on the investment strategy highlighted over the last two months. Without necessarily changing our asset allocation weights, we continue to adapt our portfolios to the new reality. We stay cautious and selective over Fixed Income markets, even though rising rates and credit spread widening are creating some opportunities in the USD IG segment, at least on a nominal yield basis. For equities, keep in mind that the upward pressure on interest rates will continue to weigh on the most highly valued stocks, continue to focus on players with pricing power and markets like Switzerland have some of these, and continue to favor areas where inflation is less of an issue and where valuations are already discounting some bad news, such as Japan, and China. We are discussing these topics in this newsletter.

QUARTERLY OUTLOOK, Q2 2022

During War Time

There is a sense of unease to comment an economic and financial outlook when an event as dramatic as the war in Ukraine is ongoing. Thousands of deaths, hundreds of thousands of Ukrainians displaced ... One month after the beginning of the war, the situation is terrible and to wonder about the impact of this conflict on the stock markets may seem cynical. Rather than improvising on the conflict as an expert, we focus and elaborate in this Quarterly Outlook on the economic and market impacts of this crisis. Without necessarily modifying asset allocation weights, we need to adapt to this environment, which is different from that of previous years. Keep in mind the upward pressure on interest rates mentioned above, as it will continue to weigh on the most expensive stocks, thus prepare for more frequent style changes as long as the growth outlook is not more established, focus on stocks that are best able to pass on price increases, find reasonably valued players in the energy transition... There is no shortage of avenues to explore, but after years of established trends, we are surely entering a period where agility will become the key word.

Monthly Newsletter, March 2022

Heading towards a new Cold War ?

After denying having any expansionist views on Ukraine, Vladimir Putin decided to intervene militarily in Ukraine on February 24th 2022. Just two days after recognizing the separatist republics of Donbass, the Russian invasion began via the eastern, northern and southern borders and laid siege to Kiev. In such dramatic circumstances, our first thoughts and sympathy go to the Ukrainian population already hard hit by this conflict. The Russian invasion is reshuffling the deck: yes, monetary tightening could temporarily take a back seat, yes, the inflationary issues should persist in the event of a supply shock, yes, certain investment themes such as commodities will have to be revisited in light of the new geopolitical realities, and yes, diversification remains a must, between safe havens to weather the storm and selective repositioning on quality assets already too severely punished. We are discussing these topics in this newsletter.

WEALTH PLANNING NEWSLETTER, February 2022

Legal incapacity and death how to get prepared

Personalised services have always been at the heart of Eric Sturdza Bank's proposition. In order to deal with increasingly complex situations, the Bank relies on its expertise in Wealth Planning to meet the ever more specific expectations of its clients. Wealth Planning is an essential part of our holistic approach. In this new issue, we asked our wealth planning expert to shed light on the process related to bank assets in the event of legal incapacity, or death.

Monthly Newsletter, February 2022

Dry January !

The year 2022 has just begun, but already it looks very different from 2021: At $88 per the WTI barrel continues on its uptrend, the US 10-year rate has risen from 1.50% to 1.80%, the Nasdaq is down 8.50%, the SPACs – the special purpose acquisition companies – are down 12%, the Bitcoin is down close to 20%, and recent IPOs – Initial Public Offerings – are down 20%. The first few weeks of 2022 confirm the trend that we have been sensing, namely a more volatile and open investing environment in terms of geographic leadership, but also in terms of styles and sectors. While the macro framework should remain supportive, we will have to learn to be more selective and cautious in 2022, as the shaky start of the year and the resurgence of geopolitical risk in Ukraine remind us. We are discussing these topics in this newsletter.

QUARTERLY OUTLOOK, Q1 2022

At the same time.

At the time of the end-of-year review, an expression dear to the French president aptly describes the situation of the markets. The variant is mutating, the effectiveness of vaccines seems very limited in the long term… and at the same time the emerging Omicron variant has only moderately impacted markets. Equities have risen strongly… and at the same time they are less expensive than last year. Inflation is high and less transitory than expected… and at the same time the US 10-year bond yield is quietly hovering around 1.5%. Can these simultaneous situations persist in 2022 ? We are trying to answer these questions in this new quarterly outlook. With macro driving forces still present, but less pronounced, the environment is expected to remain favorable in 2022 and call for more selectivity and portfolios reflecting a greater disparity of styles. An open environment which could be beneficial !

Monthly Newsletter, December 2021

Déjà Vu…

This is what investors may be feeling given the number of historical parallels between the current situation and the winter of 2020 health context in Europe, inflation at the end of the 1970s in the United States, or the situation in 2013 and the infamous “Taper Tantrum” for emerging assets... In this environment, which presents some similarities with certain past periods, yet remains very different, the message of diversification makes lot of sense: Continue to favour equities in a constructive medium- term approach, but do not forget to keep some safe havens like Gold, Yuan and Swiss Franc in your portfolio. Similarly, selectivity and a good mix of investment strategies also remain the order of the day in the fixed income and equity markets. Some of these aspects are further discussed in this newsletter.

Monthly Newsletter, November 2021

What about inflation ?

After a brief correction in September on the back of inflationary fears, the markets quickly recovered, reassured by solid quarterly results, and above all still supported by the abundant liquidity poured by central bankers but also the boosted fiscal stimulus measures. The acronyms TINA – There Is No Alternative – and FOMO – Fear Of Missing Out – are back on investors’ lips... But is it right to forget so quickly about this inflation topic ? We remain in the camp of those, expecting inflation to be slightly higher than expected but the acceleration phase to be transitory. The post-Covid bottlenecks and the recent evolution of commodity prices could nevertheless translate into a slightly longer than anticipated plateau phase. This rationale is driving our thought process on the topic and is accompanied by a heightened degree of caution with regards to this inflation issue and by an opportunistic positioning on themes that offer protection or indexation to inflation without distorting our allocations or overplaying this risk. We are discussing these topics and their implications in greater detail in this newsletter.

QUARTERLY OUTLOOK, Q4 2021

Diverging paths !

From the start of the Covid-19 crisis it became apparent that the Chinese authorities would choose a very different path to that of the Western world to handle its economic aspects. Whereas in 2008 China had been the first to launch major stimulus plans, thereby helping to drive global growth, in 2020 the government proved less spendthrift and did not “monetize” the Covid crisis. At the same time the United States worked on stimulus packages worth several trillion dollars and sent cheques to American households in order to prop up consumption. So the same Covid-19 crisis elicited very different responses. The 2021 sequence is a sharp reminder, if any were needed, that China remains a very different animal: monetary policies decorrelated from that in the West, severe regulatory crackdown on Chinese tech and internet companies at a time when the FAAMG seem invincible, the list of departing trajectories is growing longer. There is often talk of confrontation between China and the United States; the current year 2021 also reminds us that their respective capitalist models are diverging slightly more each day. We are discussing these topics and their implications in greater detail in this newsletter.

Wealth Planning Newsletter:The Challenges Of Cross-border Planning, September 2021

WEALTH PLANNING NEWSLETTER, September 2021

The challenges of cross-border planning

Personalised services have always been at the heart of Eric Sturdza Bank's proposition. In order to deal with increasingly complex situations, the Bank relies on its expertise in Wealth Planning to meet the ever more specific expectations of its clients. Wealth Planning is an essential part of our holistic approach. It allows us to get to know you, your family and your aspirations, above and beyond investment issues.

Monthly Newsletter, September 2021

Much crying but no signs of the wolf !

This is how we could describe the situation on the financial markets in August. Investors were expecting a somewhat weak month, as it is often the case in summer with reduced liquidity and less market participants. They were disappointed... Usual patterns proved wrong and August happened to be a relatively quiet month in financial markets. This is all the more surprising as there were quite a few excuses to take some profits at the beginning of the month: Double-digit returns for most major markets, a more virulent and contagious Delta variant, tapering widely expected in the United States, increased regulatory pressure in China on certain sectors and geopolitical uncertainty with the fall of Afghanistan to the Taliban. We are reviewing these events in our latest newsletter but remain committed to our investment strategy. More than ever, our strategy continues to be guided by confidence in the continuing recovery, mitigated by vigilance regarding changes in US central Bank policy and a possible resurgence of regulatory (China), pandemic or other risks…

Monthly Newsletter, August 2021

Summer Hot and Cold Weather

The offices that were beginning to fill up are emptying again in summer, helped by holidays and fears to see the Delta variant spreading. In this environment, the markets seem somewhat lost: Growth and inflation are rebounding strongly while long-term interest rates are falling; China continues to blow hot and cold ; equity markets are still on an uptrend, but with different drivers: Growth stocks are picking up (the “lower for longer” theme) while the cyclical and Value rallies seen early in the year are fading... We are discussing those topics in our investment newsletter. Last month, we indicated that as tapering approaches and as markets tend to be less liquid in a summer, financial markets were likely to be less buoyant, even though the earnings momentum remains strong. More than ever, this reflection continues to guide our strategy: confidence in a continued economic recovery mitigated by vigilance regarding an inflection in Federal Reserve policy and a possible slight resurgence of risks (covid-19, regulatory and policy).

Quarterly Outlook, Q3 2021

End of the 1st Half, Start of the 2nd !

Café terraces are lively, airports no longer look like abandoned stage scenes, in short, Europe is emerging from lockdown. Markets had anticipated this, and the strength of the European indices since autumn 2020 now seems justified by the observable improvement in the overall health situation. This period has been marked by quite a few confirmations and surprises, including a more hawkish FED and sooner than expected. We are coming back on these topics in this investment letter. As Tapering approaches, markets are likely to be less buoyant, even though the earnings dynamic will remain strong. This is what will guide our thinking in the coming period : confidence in a continued recovery mitigated by vigilance regarding an inflection in Federal Reserve policy.

Monthly Newsletter, June 2021

Recent months were marked by announcements from the Biden administration regarding fiscal and stimulus policies as well as a busy calendar in terms of quarterly results. Lately the news flow has been punctuated by more macro publications, with sometimes contradictory signals...As markets fluctuate between the fears of overheating and secular stagnation depending on the latest macro data, selectivity and diversification remain the primary drivers of our investment policy. Seeking out differentiating investment themes such as bonds denominated in Yuan and maintaining a balanced geographic approach with a tactical tilt in favor of Europe illustrate this positioning. While avoiding market extremes, we continue to highlight the benefits of a so-called Barbell strategy, which consists in favoring both secular growth themes AND cyclical and value stocks. Those points are discussed in greater detail in this newsletter.

Monthly Newsletter, May 2021

Nothing can be said to be certain, except death and taxes…

Never has the old saying seemed so appropriate in the United States. Even though the country has launched a massive vaccination campaign on an unrivalled scale – nearly 3 million doses injected every day –they still hold the sad record of most deaths from COVID-19 with nearly 575,000 people. The country also seems to be on the cusp of a historical turning point fiscally-speaking. Indeed, the Biden administration intends to raise taxes on corporates and the wealthiest households. We are reviewing in this newsletter the potential implications of this important move and are discussing our asset allocation views in light of recent market events : Selectivity and geographic diversification in equities, Barbell strategy mixing secular growth themes with cyclical / value stocks. Diversified positioning in Fixed Income with a preference for credit risk and subordinated debt as expressed by investing in Corporate Hybrid Debt for more than a year. And finally a constructive view on Precious Metals, most notably on Gold.

QUARTERLY OUTLOOK, Q2 2021

Remember March last year ?

This time last year, markets were sinking and volatility was soaring - the VIX index hit 85 at its highest level - and for a few hours, the WTI oil future contract was even trading in negative territory ! We have come a very long way since then, but although 2020 was a true one-off in terms of market behaviour, 2021 looks set to be anything but boring : rising long tern rates and US dollar, sector and style rotation... We are discussing these points in this new letter.

Monthly Newsletter, March 2021

Inflation making a come-back or inflation fears ?
Having been largely ignored in recent months if not years, the topic of inflation is back at the top of the agenda at the start of this year. This resurgence of inflationary fears has unsettled investors, or at least made them question their positioning. It seems that after years of subdued inflation, the markets had (almost) forgotten about it. But with bond markets under pressure, talks about sector & style rotation and commodity prices on the rise, very few asset classes have been spared the reawakening of investors. We are discussing these topics in this new investment newsletter.

Monthly Newsletter, February 2021

Under the sign of transition
This month of January could be described as such, as it marks not only the transition from 2020 to 2021 but also a significant rupture for health systems with the roll out of vaccine programs and obviously the political transition in the United States. This new year also marks the return of more visible speculative behaviors on selected market segments and stocks in the US. We are coming back on these various topics and their potential investment implications in this letter.

QUARTERLY OUTLOOK, 1ST QUARTER 2021

2020 in the rearview mirror, on the way to 2021 !

The investor dreams of having the next day’s newspaper, fortunately (or not !) his wish is never granted. Indeed, when questioned early March 2020 about the COVID pandemic and its potential damages, the most optimistic of them would have likely missed year end market target levels by a wide margin. The MSCI World index is up 14%, Copper up more than 25% all this in the year of the strongest recession of the post-war period... Even the period between Christmas and New Year has been quite filled with a new stimulus package voted in the US and an historic trade deal between Great Britain and the European Union. In this document, we are looking back at 2020 and those recent events, to draw our roadmap for 2021 and we are highlighting in the process a few investment topics we find interesting in this environment.

Monthly Newsletter, December 2020

Never Say Never Again.
Film buffs will have recognised the title of the only “unofficial” opus in the James Bond saga. In this film, the late Sir Sean Connery played 007 for the last time in his career. The title echoes his statement after the film Diamonds Are Forever was released that he would never again play the role of James Bond.
Never again. This is probably the same thought that American voters had after the election shambles of 2000 when they had to wait to find out the result of the presidential election. Never say never again… It also took several days for Joe Biden to be declared the winner this year. Few days later, equity markets melted up following the announcement by Pfizer and BioNTech of the initial results from their vaccine showing 90% efficacy, triggering a historical style and sector rotation in the process. We are discussing these investment topics in this letter.

Investment Focus – US Elections, November 2020

Once again, the US elections turned out to be a good drama, full of surprises, one that Netflix could have produced. The Trump vote has once again been underestimated in polls. Initial market reactions were positive to what appears to be a seriously contested election result. As we write, Biden won the presidential race and Trump is contesting results in several states. This is a remake of the Bush/Gore scenario, another drama ! The Senate race is tighter than anticipated, raising the odds of a split Congress. We are reviewing these events, their potential implications and share our thoughts on the initial market reactions.

Monthly Newsletter, November 2020

Like each year, we change the clocks, thus also marking the fact that we are entering winter. There’s no equivalent in China, where they prefer to stick to a single reading of the time throughout the country, Beijing time. As we are changing clocks, Covid-19 is again a concern with a 2nd wave in Europe. In the US, even if Joe Biden is leading over Donald Trump by 10 percentage points in national polls, his lead in key battleground states such as Florida is much more limited. No such uncertainties in China, with a COVID situation under control and an economy recovering strongly. After a brief jolt in September, no signs also of a 2nd wave for the financial markets in October, but volatility making a come-back with month-end sessions. We review the market-moving events of this month and discuss these investment topics in this letter.

Investment Focus – China, October 2020

Time to look East when everyone is looking West ?

This question summaries the dilemma investors are facing this month, as they are focused on the US election topic and potentially overlooking China’s merits. China appears to be coping quite well with the COVID-19 situation, while the US and the EU are still struggling with the pandemic. On the economic front, China is also standing out, being the only economy in the G20 expected to post positive GDP growth in 2020. We are discussing these points in this investment focus.

QUARTERLY OUTLOOK, Q4 2020

Stock market records in August, record temperatures in September, quite a summer in 2020 ! Indeed an exacerbated enthusiasm for technology stocks in August caused markets to surge. Since then, a healthy correction in tech stocks, the faster increase in Covid-19 cases most notably in Europe and fears of a disputed US election caused volatility to increase slightly and markets to consolidate. In this Quarterly Outlook, we come back on the recent market moving events and try to assess the various US election outcomes and potential implications.

Monthly Newsletter, SEPTEMBER 2020

September is already here and the summer of 2020 is coming to an end. This period, traditionally a good time to rest, has been seriously disrupted by the COVID-19 pandemic: limited cross-border travel, no gatherings, face masks and protective measures not to be forgotten plus potential quarantine when you are back… Financial markets ignored these concerns and continued to move upward. We review the market-moving events of this summer and focus on the highlights of this “back to school” period.

Monthly Newsletter, AUGUST 2020

Summer is settling in, and Covid-19 with it. The number of people infected worldwide exceeds 17 million and the number of victims is close to 700,000. Despite a resurgence of new cases, the pandemic seems to be under control in northern Asia and in Europe, with lockdown easing strategies under better control. The drastic increase in new cases in the United States, Latin America and India is more worrying. In the European Union, leaders agree on a historic recovery plan and take a first step towards European debt pooling. We are discussing those points in our monthly newsletter.

Quarterly outlook, 3rd quarter 2020

Our last quarterly outlook was drafted against a backdrop of a dislocated stock market environment, with the (extremely volatile) Standard and Poor’s index trading 45% below its current level. The anxiety-inducing environment and strict lockdown unleashed the imagination and the pens of strategists, journalists and commentators of every colour and creed, rivalling each other in their efforts to describe the “post-Covid” world. Although we did not go so far as to engage in any perilous forecasts as to what the world would become, we did focus on the macro and investment lessons of this extraordinary situation. We are coming back on these investment conclusions in this investment letter and try to update them in light of the recent events.

Monthly Newsletter, June 2020

Heading towards a precarious balance… This might be one way of describing the prevailing situation in recent weeks. After the initial shock triggered by the outbreak and then the lockdowns of populations around the world in an effort to curb the epidemic, the month of May has seen the initial phase of lifting confinement measures. This search for a precarious balance can be observed at a public health, economic and financial levels. We are discussing those points in our monthly newsletter.

Monthly Newsletter, May 2020

An earthquake will very often be followed by aftershocks of varying intensities, a sign of the movements of the tectonic plates. The same goes for financial market crises where, after an initial stock market crash, the markets can be followed by both bounces and other downward movements and/or the crisis may start to affect other asset classes. In this respect, April proved to be both true to these principles and yet exceptional by the reaction of the equity and credit markets and by the dislocation that occurred in oil price. We are discussing those points in our monthly newsletter.

Investment Focus, April 2020

On April 20th, the West Texas Intermediate price, the American crude oil benchmark, tumbled. More precisely, the WTI May 20 future contract ended the day in negative territory, reaching intraday USD -37.6. First take and implications of this unprecedented move.

QUARTERLY OUTLOOK, 2ND QUARTER 2020

Whenever a crisis arises, the very first reflex of any investor is to declare that it is like no other before it… before going on to compare it with previous crises.

If we leave aside the human drama of the coronavirus crisis and focus on the stock market and macro-economic consequences, it might be tempting to assert that this episode scores fairly highly among the most brutal crises.

Investment Focus, march 2020

MONTHLY NEWSLETTER, MARCH 2020

Coronavirus, a single situation, two different views…

This is how financial markets’ attitudes to coronavirus can be summarized in a nutshell - at least until the last week in February. Equity and credit markets initially sent a generally reassuring message, regaining the ground lost in January. This optimism was not shared, however, by so-called “risk-off” assets (gold and US Treasury bills) which, far from losing ground, continued to rise.

MONTHLY NEWSLETTER, FEBRUARY 2020

So far so good – until now ...

That is how investor sentiment could be summarised at the start of this year. Equity and credit markets are continuing in the same vein as in 2019, reaching new records and for the time being disregarding fears and geopolitical tensions. Only at month-end, the corona virus outbreak revives fears and bad memories from the SRAS.

QUARTERLY PERSPECTIVES, 1st QUARTER 2020

2019 already in the rear-view mirror, what outlook for 2020 ?

2019 ends on a positive performance for a large number of asset classes, in sharp contrast with 2018. In short, the global economy slowed sharply in 2019 but avoided recession. Once again the major central banks were very helpful, they are all now in accommodative mode. What should we infer for the 2020 outlook ?

UK General Elections, December 2019

Results and implications

MONTHLY NEWSLETTER, December 2019

The Trade War will not be happening...

That is the mantra that investors seem to be repeating over and over this month. Indeed, the markets appear to have been buoyed by the prospect of finally seeing an agreement between the United States and China over the trade war.

MONTHLY NEWSLETTER, November 2019

Deal or No Deal, that is the question

A fitting summary of this month’s news that has been so dominated by 1– the possibility of the United States and China signing a “mini deal”, and 2– the prospect of a deal finally being ratified for the United Kingdom’s withdrawal from the European Union.

Investment Focus, October 2019

Quarterly Perspectives, October 2019

Investment Focus, September 2019

Investment Focus, August 2019