Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
In any case, the capital market, which has already been characterized by the prospect of Trump 2.0 for some time and has already priced in many things, will be much more focused than usual on political and, in particular, economic policy decisions, especially in the first weeks of the new US administration.
As is well known, the market reactions to date have primarily been rising yields on the bond market as a result of increased inflation expectations, but also a more volatile – albeit still fundamentally positive – development on the stock market. In addition, cryptocurrencies have risen significantly, but the US dollar also appreciated strongly recently. The main announcements that occupy the capital market in the near future include the introduction or increase tariffs, export restrictions on US technology, deregulation in some economic sectors and tax cuts.
A further announcement concerns the significantly more restrictive immigration policy, and some significant geopolitical initiatives can also be expected. Almost all of these points will have implications for global economic growth and inflation. According to current forecasts the general conditions for the year as a whole remain constructive for both equities and bonds.
Looking ahead to the next few weeks, however, the capital market is likely to enter a period of heightened uncertainty in which the politically influenced framework conditions will begin to materialize. In any case, the "Trumponomics" policy means that the US Federal Reserve (Fed) is likely to be cautious with regard to further interest rate cuts. In the eurozone, on the other hand, the European Central Bank (ECB) path of interest rate cuts appears to be secured for the coming months. This is also reflected in our asset allocation.
Overview of asset classes
Government bonds
Yields are likely to fall further globally
We expect yields on global government bonds to fall and are particularly optimistic about US government bonds, which have recently been confronted with sharp yield increases. In the case of euro bonds, we primarily favor Italian and French government bonds and are cautious on German government bonds. In addition to German government bonds, we are also cautious on Canadian government bonds, which have recently other government bond markets.
Corporate bonds
Corrections possible in the high-yield segment
Credit spreads on corporate bonds are close to their all-time lows. Having favored this bond class for a long time (primarily EUR investment grade corporate bonds), we are now changing our strategy and are increasingly cautious about this asset class. This applies in particular to US high-yield corporate bonds, whose risk premiums are no longer line with the general economic and expensive refinancing environment. An imminent correction seems quite possible to us.
Emerging markets bonds
Downward momentum of risk premiums slowed down
We are changing our positioning for emerging market hard currency bonds (similar to corporate bonds) and are increasingly cautious. Although we do not see very expensive valuations here, as with US high-yield corporate bonds, the downward momentum of risk premiums has slowed significantly here too. We are therefore taking profits here for the time being and are basing our positioning on our general (temporary) risk-off scenario.
Developed equity markets
Remain favorable
The international equity markets remained relatively favorable at the start of 2025, with European equities in particular making gains. We expect corporate earnings continue to provide support in 2025. However, negative earnings revisions are currently dominating the picture. Our indicators have deteriorated overall over the past month. We also expect political (US) volatility (fluctuations) for the markets. We are therefore positioning ourselves somewhat weaker in equities.
Emerging equity markets
Uncertainty with regard to the US government is a burden
Uncertainty about the actual measures taken by the US government continues to weigh on the emerging markets in particular. As a result, the relative performance of the region continues to slide from one low to the next. At the same time, the fundamental valuation of this region remains quite favorable. In addition, a recovery in the earnings performance in the Asian sector, which is very important for the index. Energy and commodity-intensive sectors in particular have benefited since the beginning of the year.
Commodity markets
Present themselves in a friendly light
The international commodity markets presented themselves in a very friendly light in the first few days of 2025. In the energy sector, news of further US sanctions against Russia provided support. The precious metal sector rose again despite higher yields. We currently hold no position in the commodities asset class as part of our tactical asset allocation.