Sign in Subscribe
Banks (Finance)

LGT Capital Partners AG Adjusts Equity Positioning Amid Anticipated Interest Rate Turnaround by the Federal Reserve

Strategic Insights

— 1 min read

The Federal Reserve's adjusted rhetoric has created headwinds on capital markets, prompting LGT Capital Partners AG to adopt a more defensive stance in their equity positioning. In anticipation of an earlier interest rate turnaround, the firm sees potential in gold and upgrades emerging markets local currency bonds to "attractive." Meanwhile, European equities and commodities remain favored at the asset allocation level, despite the uncertainty surrounding the pandemic.

Key Takeaways:

  • LGT Capital Partners AG is positioning itself more defensively in equity due to the anticipated interest rate turnaround by the Federal Reserve.
  • The firm sees potential in gold, which has potential again after the recent price correction.
  • Emerging markets local currency bonds have been upgraded to "attractive" due to improving growth prospects and high carry.
  • European equities and commodities remain favored at the asset allocation level, with Europe being the preferred region due to easing pandemic restrictions and reopening trends.
  • The non-cyclical consumer sector is highlighted as a stable pillar in the portfolio, with historically low valuations relative to the overall market.
  • Emerging market companies, particularly Chinese equities, are expected to be in a bottoming phase.

Statistics:

  • Interest rates are expected to be hiked by 25 basis points in the fourth quarter of 2022, with the Fed potentially pushing guidance into the first half of 2023.
  • The Ifo business climate index in Germany continued to rise in June, both in terms of expectations and current assessments.
  • The European Central Bank (ECB) is expected to maintain its expansionary stance for much longer, not turning the interest rate screw in the foreseeable future.
  • Emerging market bonds in local currency have a high carry of more than 400 basis points in the US dollar and 550 basis points in the euro.
  • The duration of fixed income investements should be kept short in the coming months, with gold expected to see clearly higher prices in the coming quarters.

Sources:

  • "LGT Private Banking Europe Midyear Outlook" (June 23, 2021)
  • LGT Capital Partners AG Press Release

Read more