"Tik Tok on the clock, but the party don't stop, no"

The refrain "Tik Tok on the clock, but the party don't stop, no" from the global hit of the time by US singer Kesha served as the inspiration for our tactical asset allocation for April.

Just like the song lyrics, the stock market party continues. In the first quarter, the MSCI World soared by 15 per cent (calculated in CHF). Prices are being fuelled by expectations of interest rate cuts. On 21 March 2024, the Swiss National Bank was the first western central bank to start the round after the inflation rate fell to a comparatively low 1.2%. In the summer, practically all major central banks (Fed, ECB, BoE, BoC) are now likely to follow suit and push interest rates down.

Stubborn inflation as a party dampener?

These expected interest rate cuts contrast with the still very robust economic figures and rising leading indicators (global purchasing managers' index is above 52). Falling interest rates in combination with a healthy economy are fuelling the risk of stubborn inflation. That would definitely spoil the party mood. However, economists do not attach much importance to this risk. In the UK, for example, inflation is expected to fall to below two per cent.

It remains uncertain when the party will come to an end. The fact is: the air is getting thinner and thinner. Our sentiment and valuation indicators show this. We therefore remain cautiously optimistic.

Focus on emerging market equities and alternative investments

We are only slightly overweight equities and are focussing on emerging markets that have not yet performed so strongly. In terms of bonds, we remain underweight in corporate and Swiss franc bonds, while favouring government bonds from Australia and the emerging markets. We also remain overweight in alternative investments such as cat bonds, where the interest premium over government bonds remains historically high at 7.5%.

How do we currently assess the financial markets and how are we positioned?

• Credit spreads in the USA are extremely low at just 90 basis points (bp) (20-year average at 155bp, minimum at 79bp). A widening of just 13bp is enough and the entire yield advantage of one year is gone.
• European corporate bonds, especially in the lower rating range, look somewhat more attractive and offer higher yields (350bp spread).
• We are increasing our underweight and remain invested in short-dated Norwegian corporate bonds.

• 2023 was dominated by the Magnificent 7 (Apple, Alphabet, Meta, Nvidia, Microsoft, Tesla & Amazon) (+77% performance), other stocks could be safely dispensed with.
• This year, the momentum is also spreading to Japanese and European stocks, while Tesla and Apple, for example, are struggling with heavy losses.
• We are reducing our weighting in the Nasdaq 100 and increasing our investment in global momentum stocks in return.

• The currency movements this year (USD/CHF +8%, GBP/JPY +7.5%) can be explained almost entirely by the change in interest rate expectations. The central banks therefore remain price-determining.
• We expect the ECB to cut interest rates more than the SNB and consider an exchange rate of EUR/CHF above parity to be unjustified -> underweight EUR.
• USD/CHF is strongly overbought after the SNB decision (RSI <75), we remain constructive for the Swiss franc in the medium term, but are not resisting the momentum in the short term -> neutral CHF.
• Our overweight remains in Australian Dollar and Norwegian Krone, as well as in emerging markets with high real yields.

Tactical Asset Allocation in April 2024