China-US Relations

Geopolitical shifts, shifting portfolios

11 October 2021
Newsletter by the Private Wealth Management Team
Reading time: 2 minutes

Many variables impact markets and investor behaviour. Unlike economic data and data trends that are easy to understand and interpret, we find that it is increasingly important to analyse the implication of geopolitical factors on client portfolios.

Geopolitical developments, shifts, and trends come in all shapes and sizes. Our focus is on the ones that can trigger seismic shifts in trade flow or impact the global or regional business cycles. For example, for close to five years, US China relations have been deteriorating at a glacial pace, which has more recently accelerated, become more intense. Indeed, this will increasingly impact economic trade and global investor capital flow in the coming months, quarters, and even years.

Market concern and perception of China continues to deteriorate as evidenced by the China Five years credit default swap (CDS). The China five (CDS) has climbed higher for five consecutive weeks, moving from 32.733 as of September 03 week close to 51.345, close of last week, October 08. It has climbed over 57% during last month. (A credit default swap is a financial swap agreement where the seller of the CDS will compensate the buyer in the event of a debt default or other credit event.)

Source: Data as at 11/10/2021. The products or services mentioned are provided as general information only and are not intended to provide investment advice or constitute a direct solicitation on the provisions of investment services. Past performance does not necessarily predict or guarantee future results.

Such a geopolitical backdrop tends to weigh on investor confidence. Our global economic outlook remains positive, although less robust than the post pandemic bounce seen in prior quarters. Regarding inflation, our view is unchanged that inflation risks remain to the upside and that higher inflation data are generally not transitory but the trend.

It is our view that portfolios need to be adjusted accordingly and finely recalibrated. Consequently, over the past three to five months, our portfolio strategy has been recalibrated to focus more on opportunities stemming from US and EU growth and consumption trends than in emerging markets, especially emerging Asia.

Portfolio Positioning

Our macroeconomic and market outlook for major developed market economies remains constructive. However, as these major economies experience business cycle maturation, moving from early to late cycle and late cycle to expansion, sector and style allocation adjustments need to be made.

Regarding asset allocation, we are underweight cash, underweight fixed income, but we are overweight TIPS, quality high yield within fixed income.

In equities (US, EU, Swiss), we are overweight. For the US allocation, we continue to favour cyclical sectors, value over growth and small cap over large cap. For the EU, our sector and style weights are similar but more nuanced. On a relative basis, we remain cautious and concerned about the UK

Newsletter October 2021 [276 KB]

Important notice

The information provided herein constitutes marketing material, that may contain general information, and has been prepared by personnel in the GMG Investment Solutions SA or GMG Institutional Asset Management SA (collectively “GMG”) and is not based on a consideration of the prospect’s circumstances. This document reflects the sole opinion of GMG or any entity of the GMG Group and it may contains generic recommendation.

Non-Reliance: This document does not constitute a recommendation or consider the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your circumstances and, if necessary, seek professional advice. GMG is not soliciting any specific action based on this material it is solely intended for illustration purpose.

This document is not the result of a financial analysis and therefore is not subject to the “Directive on the Independence of Financial Research” of the Swiss Bankers Association.

This document is neither a prospectus as per article 652a or 1156 of the Swiss Code of Obligations, a listing prospectus according to the listing rules of the SIX Swiss Exchange or any other exchange or regulated trading facility in Switzerland, nor a simplified prospectus, key investor information document or prospectus as defined in the Swiss Federal Collective Investment Schemes Act. Any benchmarks/indices cited in this document are provided for information purposes only.

The accuracy, completeness or relevance of the information which has been drawn from external sources is not guaranteed although it is drawn from sources reasonably believed to be reliable. Subject to any applicable law, GMG shall not assume any liability in this respect.

Risk Disclosure: This document is of summary nature. The products referred to herein involve numerous risks (including, without limitations, credit risk, market risk, liquidity risk and currency risk). In respect of securities trading, please refer for more information on such risks to the risk disclosure brochure “Risks Involved in Trading Financial Instruments – November 2019”, which is available for free on the following website of the Swiss Bankers’ Association:

Material May Be Outdated: This material is produced as of a particular date. Accordingly, this material may have already been updated, modified, amended and/or supplemented by the time you receive or access it. GMG is under no obligation to notify you of such changes and you should discuss this material with your GMG relationship manager to ensure such material has not been updated, modified amended and/or supplemented. The market information displayed in this document is based on data at a given moment and may change from time to time. In addition, the views reflected herein may change without notice. No updates to this document are planned. In the event that the reader is unsure as to whether the facts in this document are up to date at the time of their proposed investment, then they should seek independent advice or contact their relationship manager at GMG.

Information Not for Further Dissemination: This document is confidential and should not be reproduced, published, or redistributed without the prior written consent of GMG.

Have a question for GMG’s investment experts? Contact us today.

    *Mandatory field

    By submitting this form, you agree to our User Agreement, our Privacy Policy & Cookie Statement and to receive marketing emails from Geneva Management Group. You can unsubscribe at any time.