IMT Asset Management AG
Austrasse 56 · P.O. Box 452
9490 Vaduz, Liechtenstein
[email protected] · www.imt.li
INVESTMENT OUTLOOK
04.2017
20 April 2017
In March, equity markets continued to rally. Emerging markets outperformed developed markets, and
Europe outperformed the US. European government
bond markets sold off while US government bonds
remained almost unchanged month-on-month.
Commodity prices fell, led by a sharp decline of oil
prices. The gold price was almost unchanged.
On 9 March the ECB kept rates unchanged but made
clear that further stimulus measures have become
less likely.
On 15 March the US Fed raised the Federal Funds
Target by 25 basis points, which had been widely
expected. The comments by Fed chairwoman Janet
Yellen suggest that two more rate hikes can be expected this year.
We continue to see a favorable environment for
risky assets, although markets have recently taken a
breather. We have become more positive on European equity markets and increased our exposure
somewhat, as the time may have come for European
equities to start closing the valuation gap vis-à-vis
the US.
Thomas Trauth
CEO – IMT Asset Management AG
IMT Asset Management AG
Investment Outlook 04.2017
ROTATION INTO EUROPEAN EQUITIES
called hard indicators, like actual consumption and
production data, have also improved. While this is a
good development as it confirms the positive growth
dynamics, it will become harder to beat expectations
going forward.
Financial markets
Equity markets continued to perform well in March.
Emerging markets gained 2.3%, and developed equity markets 0.8%. The EuroStoxx50 index was up by
5.5% and clearly outperformed the US S&P500 index, which was flat month-on-month. Among
emerging markets, the Mexican IPC index was up
3.6% and the Indian Nifty index 2.2%. At the same
time, the Brazilian Bovespa index fell 2.5%.
The European PMI climbed to 56.2 after 55.4. The
US PMI declined slightly to 57.2 after 57.7 in February. Since the level is still far above the 50-mark,
which divides the growth from the contracting zone,
it remains a very strong reading.
The market for European government bonds sold off
with 2-year yields rising 16 basis points and 10-year
yields 12 basis-points. Meanwhile, US government
bonds remained almost unchanged month-onmonth.
The US unemployment rate fell further to 4.5%. US
non-farm payrolls rose by only 98,000 in March vs.
219,000 in February. While the figure was clearly
below expectations, it may signal a more normal job
growth as the labor market moves towards full employment. US average hourly earnings rose 2.7%
year-on-year and show a steady growth without
rapid pickup.
The performance of high-yield bonds was flat in
March, while local emerging markets bonds returned 2.3%.
Overall, commodity prices fell in March, led by a
sharp decline of oil prices. The price of Brent oil fell
by 6.7%. The gold price, however, was almost unchanged in March.
Headline inflation in the US declined somewhat to
2.4% after 2.7% year-on-year and to 1.5% in the
Eurozone after 2.0%. This is a result of the reduced
base effect from energy prices. In China inflation fell
markedly, from 2.5% year-on-year in January to 0.8%
in February and 0.9% in March. This is the result of
declining food prices.
REITS continued to be very volatile. In March the
global REITS index fell by 2.6%, pushing down the
year-to-date performance to zero. In the last couple
of weeks, the index recovered its March losses.
US inflation expectations, as measured by 10-year
break-even rates dropped somewhat to about 1.9%
and the European equivalent dropped by about the
same amount to 1.15%.
Macro economics
In recent months, we have experienced a high number of positive surprises from macro indicators. This
has been true primarily for soft indicators like consumer and business sentiment. Increasingly, so-
–2–
IMT Asset Management AG
Investment Outlook 04.2017
Central banks
about vanished. This may lead to European equities
starting to close the current valuation gap between
Europe and the US . European equities trade at a
22% discount to the US, compared to the five-year
average of 17%. The devaluation of the EUR, despite
some recent EUR strength, should continue to provide tailwinds for European exporters. Since Mid2014, the EUR has devalued by 23% versus the USD.
We also observe margin improvements for European
companies, and the growth and earnings pick-up in
Europe seems to have become more dynamic compared to the US.
On 9 March the ECB kept rates unchanged, as expected, and made clear that further stimulus
measures have become less likely. Financial analysts
are debating when the ECB is likely to taper, especially since growth is picking up and headline inflation reached almost 2% earlier this year. However,
headline inflation was mostly driven by base effects
with energy prices. We do not foresee inflation rising strongly in the foreseeable future, which will
allow the ECB to announce tapering of its asset purchases in September. In our view, this will be accompanied by dovish statements and the tapering
pace will be rather modest.
While Japanese equities have underperformed since
the beginning of the year, we maintain our overweight position, as monetary support should eventually lift equities higher.
On 15 March the US Fed decided to raise the Federal Funds Target by 25 basis points, as expected. The
Fed sees risks as balanced and the general policy
stance as still accommodative. We expect two more
rate hikes this year.
Looking for risks which have the potential to cause
market disruptions, we would see especially the
following four. Firstly, President Trump could decide
on further military interventions in the Middle East
and potentially also in North Korea. Secondly, US
debt is rising and may reach the debt ceiling within
the next couple of months. Since powerful parts of
the Republican party are strongly against lifting the
debt ceiling, this may lead to fierce debates in the
US Congress. Thirdly, the French could – surprisingly
– elect an anti-European president. Fourthly, despite
all efforts to stabilize the economy before the Communist Party conference in October, the Chinese
economy could slow down and send ripple-on effects through global financial markets.
Outlook
We continue to see a positive outlook with stable
growth, moderate inflation and rising earnings. This
bodes well for equity and credit markets, despite
more challenging valuations.
We have reduced our overweight for high-yield
bonds, since rich valuations make the risk-return
look less favorable.
Among equities we have shifted to a higher allocation of European stocks , since the general perception seems to be that political risk in Europe has just
–3–
IMT Asset Management AG
Investment Outlook 04.2017
ECONOMICS
Growth data remained strong in March. Headline
inflation fell slightly since base effects from commodity prices declined in that month. US non-farm
payrolls rose by only 98,000 in March vs. 219,000 in
February. While the figure was clearly below expec-
tations, it may signal a more normal job growth as
the labor market moves towards full employment.
The unemployment rate fell to 4.5%. US average
hourly earnings rose 2.7% year-on-year and show a
steady growth without rapid pickup.
Fig. 1: PMIs
Fig. 2: PMIs
60
60
55
55
50
50
45
12/14
US
EMU
Japan
Switzerland
12/15
China
45
12/14
12/16
Fig 3: Consumer price inflation, in % YoY
12/15
12/16
Fig. 4: Consumer price inflation, in % YoY
4.0
3.0
2.0
2.0
1.0
0.0
0.0
-1.0
-2.0
12/12
US
12/13
EMU
Switzerland
12/14
12/15
-2.0
12/12
12/16
Fig 5: Unemployment rates, in %
Japan
China
12/13
12/14
12/15
12/16
Fig 6: US labor market
14
3.0
12
600
Avg. hourly earnings, % YoY, lhs
Chg. US non-farm payrolls, '000, rhs
10
8
2.5
400
2.0
200
6
4
2
0
12/12
US
12/13
EMU
12/14
Switzerland
1.5
12/12
12/15
–4–
0
12/13
12/14
12/15
12/16
IMT Asset Management AG
Investment Outlook 04.2017
FIXED INCOME
The European government bond market sold off in
March, while US government bonds remained flat
month-on-month. The European yield curve flattened, since the short-term yields rose more strong-
ly than long-term yields. Break-even inflation retreated somewhat from recent highs. High-yield and
emerging markets spreads remained stable.
Fig.7: 2Y government bond yields
Fig. 8: 10Y government bond yields
2.0
4.0
US Treasury
Bund
Swiss
US Treasury
Bund
Swiss
3.0
1.0
2.0
0.0
1.0
-1.0
-2.0
12/12
0.0
12/13
12/14
12/15
-1.0
12/12
12/16
Fig 9: 10Y break-even inflation
12/13
12/14
12/15
12/16
Fig. 10: Credit spreads, 5Y credit default swaps
3.0
600
2.5
2.0
High Grade
High Yield
400
1.5
1.0
200
0.5
0.0
12/12
US
German
12/13
12/14
12/15
0
12/12
12/16
Fig 11: Money market spreads (3M-2Y)
12/13
12/14
12/15
12/16
Fig 12: Merrill Lynch volatility index
1.0
140
FI volatility
120
0.5
100
0.0
80
-0.5
-1.0
12/12
60
US
12/13
Euro
12/14
Swiss
12/15
40
12/12
12/16
–5–
12/13
12/14
12/15
12/16
IMT Asset Management AG
Investment Outlook 04.2017
EQUITIES
In March equity markets performed well. Emerging
markets continued to outperform, and within developed markets the Nikkei225 clearly underperformed. In March the European EuroStoxx 50 equity
index climbed by 5.5% and managed to catch up
with the year-to-date performance of the S&P500
index. The S&P500 index was flat in March. The
energy sector has clearly underperformed year-todate, suffering from falling oil prices. Information
technology and industrials have performed best so
far.
Fig. 13: MSCI equity indices – major regions
Fig.14: Equity indices – major developed markets
115
110
110
105
105
100
100
95
12/16
Developed markets
Frontier markets
01/17
02/17
Emerging markets
95
12/16
03/17
Fig 15: Equity indices – major emerging markets
EU
100
80
12/16
Nifty 50
Ibovespa
Micex
01/17
02/17
03/17
Fig 17: Price-earnings ratios
40
35
US -15
-10
-5
0
5
10
50
MSCI US
MSCI EU
VIX Index
40
30
25
20
20
10
12/13
03/17
Fig 18: Equity volatility – S&P500 VIX index
30
15
12/12
02/17
Cons. disc.
Cons. staples
Energy
Finance
Real Estate
Health
Industrials
Inf. techn.
Material
Telco
Utilities
110
CSI 300
01/17
EuroStoxx50
SMI
Fig. 16: Sector performance, MSCI Europe, 2017
120
90
S&P500
Nikkei
12/14
12/15
0
12/12
12/16
–6–
12/13
12/14
12/15
12/16
15
IMT Asset Management AG
Investment Outlook 04.2017
ALTERNATIVE INVESTMENTS
The Brent oil price fell by 6.7% in March, while the
broad commodity index declined 2.7%. Gold was flat
month-on-month. REITS have been very volatile in
recent months. The global REITS index fell 2.6% in
March, wiping out all year-to-date gains, but recov-
ered strongly in April. Listed private equity continued to rally and performed 5.7% between January
and the end of March.
Fig. 19: Gold price, USD/oz
Fig.20: Oil price, USD/bl
1800
140
120
1600
100
1400
80
60
1200
40
Gold
1000
12/12
12/13
12/14
12/15
20
12/12
12/16
Fig 21: Bloomberg commodity indices
Oil - Brent
12/13
12/14
12/15
12/16
Fig. 22: HFRI hedge fund indices
120
130
100
120
Composite - Fund Weighted
Global Macro
Quant Directional
80
110
60
40
12/12
Composite
Industrial Metals
Agriculture
12/13
12/14
100
12/15
90
12/12
12/16
Fig 23: FTSE EPRA/NAREIT global index
12/13
12/14
12/15
12/16
Fig 24: LPX global listed private equity
2200
2400
Global REITS
2000
2200
1800
2000
1600
1800
1400
1600
1200
1400
12/12
1000
12/12
12/13
12/14
12/15
12/16
–7–
Global listed private equity
12/13
12/14
12/15
12/16
IMT Asset Management AG
Investment Outlook 04.2017
CURRENCIES
EUR-USD continues to be in a trading range. The
GBP strengthened after Theresa May announced
snap general elections on June 8. The JPY and the
CHF continue to remain on the strong side. The
Chinese CNY has stabilized recently, after it devalued
by about 7% in 2016.
Fig. 25: EUR-USD exchange rate
Fig. 26: GBP-USD exchange rate
1.80
1.40
1.70
1.30
1.60
1.50
1.20
1.40
1.10
1.00
12/12
1.30
EUR-USD
12/13
12/14
12/15
1.20
12/12
12/16
Fig 27: USD-JPY exchange rate
GBP-USD
12/13
12/14
12/15
12/16
Fig. 28: USD-CNY exchange rate
7.00
130
USD-CNY
120
110
6.50
100
90
USD-JPY
80
12/12
12/13
12/14
12/15
6.00
12/12
12/16
Fig 29: EUR-CHF exchange rate
12/13
12/14
12/15
12/16
12/15
12/16
Fig 30: USD-CHF exchange rate
1.30
1.10
1.20
1.00
1.10
1.00
0.90
EUR-CHF
0.90
12/12
USD-CHF
12/13
12/14
12/15
12/16
0.80
12/12
–8–
12/13
12/14
IMT Asset Management AG
Investment Outlook 04.2017
ASSET ALLOCATION
During the first quarter the market environment
was favorable for multi-asset class portfolios.
Especially equity markets contributed to a positive
performance. Also, the risky part of the bond
universe performed strongly. Taking risks has
been rewarded. Commodities, except for gold,
had a bad first quarter. In March REITS gave back
all their gains of January and February.
Fig. 31: Performance of major asset classes, based on our EUR portfolio strategy
-4%
-2%
0%
2%
Fixed Income
Cash, EUR
Europ. Government, EUR
Inflation-linked, EUR
Investment grade, EUR
Insurance-linked, USD
High yield, LC
Emerging markets, USD
Emerging markets, LC
Convertibles
Convertibles, EUR
Equities
MSCI Europe, LC
MSCI US, USD
MSCI Japan, JPY
MSCI Pacific, ex JP, LC
MSCI Emerging Markets
Alternatives
REITS, developed markets, LC
Hedge Funds Index (HFRX)
Bloomberg Commodities, USD
Gold, USD
Currencies vs EUR
USD
GBP
CHF
NOK
SEK
JPY
AUD
YTD
March
–9–
4%
6%
8%
10%
12%
IMT Asset Management AG
Investment Outlook 04.2017
RISK MONITOR
The risk monitor exhibits no major changes. The
market risk environment remains benign. Equity
valuations continue to be somewhat elevated. In
our risk assessment, we believe that geo-political
risks are not sufficiently reflected in the risk moni-
tor, but in our base case scenario we remain confident that overall risks have declined in recent
months.
Fig. 32: IMT Risk Monitor
Systemic
Inflation
Monetary tightening
Growth
Implied volatility
Equity valuations
7-Apr-17
3-Nov-16
Credit
15-Feb-16
– 10 –
Low risk score: 1
Max risk score: 10
IMT Asset Management AG
Investment Outlook 04.2017
DISCLAIMER
This document is for information purposes only and
is not a solicitation of an offer or a recommendation
to buy or sell any investment instruments or to engage in other transactions. This document contains
data and information which are prepared by IMT
Asset Management AG. Although IMT Asset Management AG takes care to ensure that the information in this document is correct at the time it was
collected, IMT Asset Management AG neither explicitly nor implicitly provides any assurance or guarantee of accuracy, reliability or completeness, and
assumes no liability or responsibility for either its
own or for third-party publications. IMT Asset Man-
agement AG is not liable for any direct, indirect or
incidental loss incurred on the basis of the information in this document and/or on the risks inherent in financial markets. Investment in financial
products should be done only after carefully reading
the relevant legal requirements, including sales
restrictions or any other risk factors. Any opinions
represented in this document solely reflect those of
IMT Asset Management AG or specified third-party
authors at the time of publication (subject to modifications). The services mentioned in this document
are addressed exclusively to clients of IMT Asset
Management AG.
Source for all graphs: Bloomberg, IMT Asset Management AG.
– 11 –