Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
The import tariffs announced, including the ad hoc reactions of affected countries and the associated risk of a global trade war, are particularly relevant for the financial markets. Donald Trump's new presidency was feared by many and associated with a number of concerns.
However, the stock market adage "sell the rumours, buy the facts" can once again be applied, as Europe and the
At the same time, the obvious need for a military build-up in Europe is being bet on, which in turn is reflected in the outperformance of defence stocks. Overall, global equities were still trading close to all-time highs until recently, with below-average volatility to date. One attempt to explain this is that the high degree of unpredictability has long since become the norm for the market and the fundamental environment continues to show a moderately growing global economy with limited inflationary momentum, combined with solid even corporate profits.
This positive scenario is likely to be repeatedly subjected to a stress test. It should also be noted that after the long dominance of the highly valued Magnificent 7 stocks (Apple, Nvidia, Alphabet, Meta, Amazon, Tesla and Microsoft), there now a welcome trend towards a broadening of the upswing in terms of regions, sectors and individual stocks. As long as the geopolitical trouble spots do not escalate further or there are no concrete signs of a recession, government bonds are likely to be more burdened by the currently increasing risks of inflation and government debt than equities.
The capital market will probably have to live with the increased level of unpredictability for the foreseeable future - based on our indicators, a renewed focus on equities is indicated following the recent market corrections.
Overview of asset classes
Government bonds
Yields are likely to fall further globally
We continue to expect yields on global government bonds to fall. We therefore favor US securities, followed by UK government bonds. In the EUR segment, we favor Italian and French government bonds, while we are cautious about German government bonds. This caution also applies to Canadian bonds.
Corporate bonds
Asynchronous development in the USA and eurozone
We are also seeing an asynchronous trend in corporate bonds. In the USA, credit spreads have recently risen moderately, while in the eurozone they remain largely close to historical lows. We remain cautious on USD high-yield corporate bonds. This caution is strongly referenced to the extremely expensive valuation, which cannot be justified even in the short to medium term against the backdrop of the current extremely erratic US policy.
Emerging markets bonds
Risk premiums could rise further
We removed emerging market hard currency bonds from our shopping list last month and instead weighted duration-equivalent US government bonds. As a result, we are positioned towards higher risk premiums for emerging market hard currency bonds, with the expected higher risk aversion of USD bond investors playing the main role for us. Although we have benefited from the recent rise in risk premiums, we expect even sharper increases and therefore remain cautious on emerging market hard currency bonds for the time being.
Developed equity markets
Corporate earnings supportive
The international equity markets were also relatively favorable at the start of 2025 in view of the news situation, with European equities in particular significant gains. We expect corporate earnings continue to provide support in 2025. Our indicators have improved overall over the past month despite the high volatility. We have therefore recently taken a much stronger position in equities.
Emerging equity markets
Fundamental valuation quite favorable
Following the mixed performance of US equities since the beginning of the year, emerging market equities have been able to make up some ground, albeit from a very low level. The measures taken by the US government seem increasingly erratic, meaning that uncertainty is being priced in rather than out of the US. At the same time, the fundamental valuation of emerging market equities remains quite favorable. There is also a recovery in earnings performance in the Asian region, which is very important for the index. Since the beginning of the year, telecoms and cyclical consumer goods in particular have benefited.
Commodity markets
Precious and industrial metals rise
The international commodity markets have been very friendly in recent weeks. While the news on US tariffs weighed on the energy sector, precious and industrial metals were able to gain in this environment.