Do the signs ahead point to storm?

Capital investments in stormy times

Quick money earned without taking a decent risk is not possible. The year 2018 started in equity markets with a dynamic up wind. It looked like the markets only know one direction – to the upside, based on continuous positive economic figures, better than expected earnings figures and a still relatively low inflation. What does an investor want more?

Complex environment

The latest interest rate increases in the US, especially the planned steps for 2018 seem to be a non-event. In such an environment the EUR has got strength even the interest rates are an advantage for the USD. For many investors not understandable. The ones who followed a conservative strategy had to find answers quite often to the question “why is my performance so low while stock markets were rising heavily”, Wolfgang Zehenter, CEO of Zehenter & Partner Invest AG summarizes the current situation and explains: “Many investors only have their focus on equity markets and ignore the zero-interest-environment”.

From one day to the other the wind turned and we are seeing right now a firm correction in equity markets. On the income side, interest markets, mainly in the US, have already suffered, where especially corporate bonds and high yield bonds suffered the most. “Why this correction?” many market participants are asking. The world economy does nicely, interest rates are still on a low level and corporate earnings are developing very positive. The answers are found in the complex structure of financial markets. The S&P500 Index is nearly even year to date, but it lost end of January more than 10 % during only 10 days. The German DAX Index lost from his top in January also more than 10 %. Nearly identical the development of the Japanese NIKKEI225 Index.

Clear target, lots of questions

Does this correction prolong? How deep will prices fall? Is this the start of a bearish market? The DAX Index and SMI (Swiss Market Index) lost since January 2018 the performance of a whole year. How shall we invest in an environment with nearly zero interest? Does it make sense to invest in government bonds with negative yields? How long do we want to keep liquidity with no interest on a current account, while inflation is reducing purchasing power every day? How long does the European Central Bank wait until she will return to monetary rules? How long can the Americans keep the USD low despite the advantage in interest rates? What influence can trade wares have which president Trump started right now with punitive tariffs? Which influence does the enormous money supply, which has been created during the last years, have on the economy in coming years? The list of open questions seems to be endless und includes a lot of dangers and uncertainties. The most important target right now is to keep the value of capital and purchasing power. “All these are questions which we cannot answer today, while the answers will have big influence on the results of our capital investments”, Zehenter points out and explains the own investment strategy, where they deliberately abstain from alpha to achieve high returns in favor of security which is the central point. The equity strategy MinMax Global Equity as well as the income strategy Strategic Income are clearly focused to a participation in up cycles and shall avoid the bigger part of a down trend through hedging strategies. Based on that one is focused on capital protection as well as protection of purchasing power. Thus, we can have a relaxed view what is coming until we will see more steady market conditions.

BY WOLFGANG ZEHENTER*

Wolfgang Zehenter
Founder & CEO Zehenter & Partner Invest AG