In the first half of April, the conflicting parties in the Middle East agreed on a ceasefire that has held to this day and initially brought noticeable relief to financial markets. Nevertheless, the conflict continues to highlight how vulnerable the globally interconnected economy remains. It underscores not only the need for broader diversification of energy supply but also poses significant challenges for central banks. Many countries—particularly in Europe—are responding to higher energy prices with fiscal measures such as tax cuts or targeted relief packages. At the same time, the latest economic data paint a challenging picture: with inflation at around 3% and growth at just 0.1%, there are increasing signs of a stagflationary environment. Against this backdrop, it is expected that the major central banks will continue to adhere to their current monetary policy stance. The energy shock triggered by the Iran conflict is likely to require additional time before its full impact on inflation and growth can be conclusively assessed. This view is also reflected in the hearing of the likely future Fed Chair, Kevin Warsh, in the U.S. Senate: while he signals a willingness to implement reforms, there are no indications of a short-term or radical shift in monetary policy. Meanwhile, financial markets appear remarkably calm and continue to assume a near-term de-escalation with manageable economic consequences. In addition to many equity markets trading near all-time highs, low risk premiums on corporate bonds and elevated valuations reinforce this picture. Whether this optimism proves justified will ultimately depend on how quickly geopolitical tensions ease—and how resilient the economy and inflation prove in the face of new shocks.
In equity markets, investors are betting on a sustained boom in memory chip manufacturers such as Samsung and SK Hynix, driven by rapidly rising demand for AI. A structural shortage of memory has become a key bottleneck in AI infrastructure. Unlike past cyclical fluctuations, major customers are increasingly securing long-term supply contracts spanning several years, improving planning certainty and reducing price volatility. Fueled by massive investments from cloud and AI providers, the market is evolving into a seller’s market with strong pricing power and exceptionally high margins. Much points toward a multi-year “supercycle,” although risks such as potential overcapacity, declining demand, or rising competition—particularly from China—remain, and the fundamentally cyclical nature of the industry is unlikely to disappear entirely. This AI-driven optimism is contrasted by a certain degree of macroeconomic caution stemming from the potential effects of geopolitical conflicts. In the current environment, different scenarios with similarly high probabilities appear plausible. Against this backdrop, we continue to view broad diversification across sectors and regions—as already implemented in our portfolios for some time—as the appropriate strategy.
A notable recent development has been the oil price: Brent crude traded at times higher at the end of April than during the ongoing attacks on energy infrastructure in the Middle East. The price increase followed the U.S. announcement to continue the blockade of the Strait of Hormuz. Whether such statements will have a longer-lasting impact than the many other announcements from the White House during the conflict remains to be seen. What is clear, however, is that challenges for the oil market intensify the longer the Strait of Hormuz remains closed. A significant indicator from our perspective is the rise in prices of longer-dated oil futures, which typically react more slowly. The resulting inflationary environment also affects bond markets: given the prevailing risks, the currently near-record-low risk premiums on corporate bonds appear overly optimistic. While, depending on the currency, seemingly attractive yields to maturity can still be found despite tight spreads, government bonds in the same currency reach comparable yield levels due to those low spreads. For investors with the Swiss franc as their reference currency, the question arises whether the foreign currency risk is sufficiently compensated. We doubt this: in light of current developments and supported by empirical evidence, we clearly favor real assets and maintain an overweight at the expense of foreign currency bonds.
Media coverage is currently dominated almost exclusively by negative news—but those who focus too strongly on it risk recognizing opportunities in financial markets too late or not at all. Recent financial market history offers numerous examples of events that triggered significant short-term disruptions: the war in Ukraine, COVID‑19, Brexit, the eurozone debt crisis, or the U.S. regional banking crisis in 2023. Yet, a sober assessment shows that while each of these events undoubtedly had noticeable impacts, even collectively they did not prevent long-term growth. It is therefore all the more important not to lose sight of opportunities, even in an environment dominated by negative headlines, and to draw the right conclusions from both short-term developments and long-term trends. Against this backdrop, we remain cautiously optimistic and take current conditions into account with a targeted investment strategy. An oil sector allocation established at the beginning of April has already been partially realized following a pleasing return contribution. Beyond that, we have made only selective adjustments. Our portfolios therefore remain overweight in real assets, broadly diversified, and well positioned for the future.