Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
Contrary to expected seasonality, global equities posted gains even in the often difficult months of August and September – including on a euro basis, although the US dollar continues to weaken, dampening performance for global investors from the eurozone. Riskier bond categories also continued to perform well and benefited from spread tightening.
Overall, the past quarter has thus been clearly better than expected for risky assets. Economic data and leading indicators for the economy are also significantly better than expected in the spring. While the probability of recession initially rose in April and May under the impact of US tariffs, a positive trend reversal has since set in. The closely watched purchasing managers' indices have tended to recover in all regions, suggesting confidence among companies. At just under three per cent, the estimate for global economic growth is also almost back to its initial level for 2025, after this forecast had been set significantly lower in the meantime.
Inflation expectations for the US, which rose noticeably in the spring, have fallen back somewhat, opening up the possibility for the Fed to cut interest rates in September in response to the recent weaker labour market data within the framework of its dual mandate. Corporate earnings continue to be significantly better than analysts had expected, which has also led to corresponding revisions in profit estimates. Double-digit sales and profit growth in the US, particularly due to massive investments in AI technology, is probably the most important driver for the stock market.
All these better-than-expected trends, both at the macro level and at the corporate level, are supporting developments on the capital market and are clearly leading to negative factors being largely ignored so far. Our market assessment is also positive, which is why we are increasingly focusing on equities in our positioning.
Overview of asset classes
Steeper yield curves in the US and Germany
We expect yields on German government bonds with medium maturities (5 years) to fall and remain strongly positioned accordingly. We also take a positive view of US government bonds (5 years). We have neutralized our yield curve positions after the yield curves in the US and Germany became significantly steeper. We remain optimistic about German and French government bonds and are cautious about Italian securities, as they now have virtually the same risk premium as French government bonds.
Risk premiums likely to rise in the medium term
In the corporate bond market, we remain cautiously positioned in US high-yield corporate bonds. We expect risk premiums to rise in the medium term and prefer US government bonds to this bond class. We remain neutral in the EUR corporate bond market.
Emerging market bonds benefit from the "flight in all directions"
Emerging market hard currency bonds once again performed very well in September. For the time being, we are maintaining our cautious assessment, as we do not share the market's extreme optimism and are taking a defensive stance on this bond class, among others (while favoring low-risk bond classes). Contrary to our expectations, the tariffs imposed by the US on its emerging market trading partners seem to have had little impact on prices. Emerging market bonds are also benefiting from the current "flight in all directions".
Positive sentiment due to favorable conditions
Global equity markets have remained fairly stable in recent months. In addition to better-than-expected economic data, corporate earnings once again proved to be an important supporting factor. Most recently, earnings expectations for the coming quarters were also revised upwards. Sentiment is already very optimistic in the short term (contraindicator), but given the overall positive conditions, we are nevertheless positioning ourselves somewhat more strongly in equities.
Asian tech stocks in particular are performing well
September was a very good month for equities from emerging markets, both in absolute terms and relative to developed stock markets. Tech-related equities from Asia in particular performed very well. This enabled emerging market equities to extend their performance advantage and, for the first time in many years, outperform global developed equities. The fundamental valuation for the emerging markets region remains quite favorable. Since the beginning of the year, telecoms and basic materials stocks in particular have benefited. IT stocks have recently caught up strongly.
Precious metals at new all-time highs
International commodity markets have recently performed very positively across the board. Precious metals climbed to new all-time highs once again. Structurally, central bank purchases continue to provide sustained support. Retail buyers have also recently shown renewed interest in gold. Industrial metals also recovered significantly, while energy commodities remained at unchanged levels. Following the very good performance of precious metals, we took profits.