In 2023, numerous geopolitical risks came to the fore, supplemented by interest rate hikes by central banks in the fight against inflation. The conflict in Ukraine will soon last two years. In addition, the situation in the Middle East has worsened, particularly between Israel and Hamas. An escalation of the conflict to neighboring Arab countries has been prevented so far. Economic weaknesses are also evident in two of Switzerland's key trading partners: China and Germany. These developments are leading to a lack of important impetus from foreign trade. Geopolitical issues will continue to play an important role in the coming year. However, the past has shown that the impact of such events on the global financial markets is often short-lived.

Fewer sustainability investments, but more investments in pharmaceutical companies and the healthcare sector. Artificial intelligence en masse, but shares instead of gold. These are some of the resolutions of independent asset managers in Switzerland for the first quarter of 2024, according to the latest AVI Index.

In the Christmas edition of Aquila Focus, Nicolas Peter, Head of Investments and Banking, ventures an outlook into the new year.

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The KOF Swiss Economic Institute at ETH Zurich examines economic development in Switzerland as well as worldwide. The leading indicator for the global economic barometer already indicated in the second half of 2022 that economic growth will cool down in the coming months and is likely to bottom out in the first quarter of 2023. This currently indicates a clear recovery in growth. This is also the case in Switzerland, where the leading KOF indicator appears to be stabilizing and has bottomed out.

These are difficult times ahead for independent asset managers in Switzerland. The emergence of the new UBS is tricky, the outlook for the financial markets is gloomy, and global debt could reach unprecedented levels. Still, there is one bright spot for the industry, according to the latest AVI Index.

The economy in the USA is still surprisingly robust. The flip side is that inflationary pressures remain elevated. However, there are increasing signs of a slowdown. Loan arrears and bankruptcies are rising.
In the Eurozone there is a marked loss of momentum. The services sector is now also coming under pressure.
Central banks take such developments into account in setting their mone-tary policies. They have stepped back from a commitment to rapid rate rises and have shifted to “fine-tuning”. This might involve modest rate changes and substantial pauses when it comes to changing rates.
Yields on 10-year US government bonds have risen to 4.5%, reaching a 16-year high. Meanwhile, European and Swiss government bond yields have trended sideways.
Equity markets are unsettled and are currently trading around 5% below their highs for the year (depending on the region).
The US dollar is benefit-ing from the rise in US yields and looks set to make further gains. The Swiss franc is trending weaker.
Gold has lately been rather stable despite rising US real interest rates. Oil prices have risen, reaching a high for the year around $95 a barrel.

In the latest Aquila Focus, Nicolas Peter, Head of Banking & Investments, discusses economic growth in Europe and the US and explains our current tactical allocation.

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Fewer equities, more gold and caution with artificial intelligence. According to independent asset managers in Switzerland, these are the most important trends for the next three months.

Most central banks are still raising interest rates while liquidity and the money supply are being cut back. At times, the stresses caused by monetary policy tightening is forcing some central banks to relax their policies temporarily. But the importance of such short-term countermeas-ures should not be overestimated.
Overall, tighter monetary policies are having an increasing impact on the consumer and the economy.
The fall in inflation rates is taking the pressure off from monetary authori-ties. The peak in the interest rate hike cycle is likely to be reached in the second half of the year.
Yields in the major government bond markets have been rather stable as of late. Volatility has fallen significantly.
Trends in stock markets are increasingly reminiscent of the Tech bubble of 1999/2000. We remain cautious in our positioning and neutrally weighted in the equity quota.
Currency markets have been broadly stable. The Swiss franc continues to be in demand.
Having risen earlier in the year, the gold price is now consolidating.

In the latest Aquila Focus, Nicolas Peter, Head of Banking & Investments, discusses the events of the past few weeks and how we have reduced risk in our portfolios.

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While individual independent asset managers speak of price opportunities, the majority of those surveyed tend to be more gloomy in their forecasts. More than 50 percent of external asset managers also think that text software based on artificial intelligence is completely overrated.

The troubled US regional banks and the emergency takeover of Credit Suisse by UBS unsettled market participants. The write-down of AT1 securities by CS led to a sharp decline in the price of the asset class.
It was only the loss of confidence that led to the distress of companies that were fundamentally soundly financed. Governments and central banks are endeavoring to restore confidence.
Negative effects on the still robust economy cannot be ruled out. Companies and consumers are threatening to become more cautious.
The monetary policy of the central banks is coming into even sharper focus.
Due to the uncertainties related to the U.S. banking sector, investors sought safe havens. These included the government bonds of the major economies, but also gold, which at times traded at over $2,000 per ounce.
The equity markets are proving resilient, but we remain cautious in our assessment and neutral in our equity allocation.
In FX markets, movements are relatively small despite stress in the financial system.