Commodity-heavy regions at an advantage

At a glance

Economics

• Putin’s invasion of Ukraine weighs on the economy. Europe is hit much harder than the US.
• Higher prices for energy, food and raw materials are causing an inflation shock.
• In the course of the year, the economy should recover from the shock and growth should return.

Equities

• Russia-Ukraine war triggers significant sell-off in equities. Cyclical equities are heavily weighed down by stagflation concerns.
• Equity regions with many commodity companies are at an advantage. Strong pessimism offers opportunities for recovery.
• Asymmetric risk-reward ratio favours equities, which is why we are maintaining our moderate overweight.

Bonds

• Safe haven government bonds have benefited. The geopolitical crisis does not change our medium-term interest rate outlook.
• Corporate bonds are increasingly attractive due to widening spreads and rising interest rates. Opportunities are on the horizon.
• We are underweight bonds and remain overweight corporate bonds; duration: short.

Commodities

• Gold benefited as a safe haven. Possible headwind from real interest rates only moderate with simultaneously rising interest rates.
• Supply shortage drives oil price up. Further sanctions and supply cuts by Russia provide upward pressure.
• Industrial metals are supported by high oil prices and supply concerns. Decarbonisation accelerates as a long-term driver.

Currencies

• The Russia-Ukraine war is driving investors into safe havens. The US dollar, Swiss franc and yen are benefitting.
• These are difficult times for the euro – the regional proximity to the Ukraine-Russia war is a relative burdening factor.
• The Bank of England’s interest rate turnaround marches ahead. The British pound continues to strive upwards.