Nine months later, it’s sobering to take stock: economic growth in the USA has halved year-on-year, and the dollar has lost around 12 percent of its value. The currency’s devaluation has led to greater contributions of earnings from abroad, allowing US companies to further boost their profits. As a result, the US stock market is trading at historic highs.
Measured in dollars, the US stock market index rose by 16 percent in the first three quarters. Calculated in francs, however, its performance is far worse, lagging well behind the performance of the Swiss equity market. The difference is even more striking when compared to China: the stock market of America’s strategic adversary rose by an impressive 41 percent in dollar terms.
It means our investment positioning proved to be correct: our recommendation to reduce US stocks and invest more heavily in Chinese equities paid off. The extent of the Chinese stock markets’ gains is all the more remarkable given that there is as yet little sign of a sustained Chinese economic recovery. The real estate sector remains mired in crisis, and the economic policy support programmes put in place have had little impact up to now. It’s a good time, then, to take profits made in China.
We remain sceptical about US economic performance. The price of the politics of strength is a profound sense of uncertainty within American society. Politically, the two major parties no longer seem capable of any real compromise. At the same time, budget deficits and government debt are reaching new record highs, which is increasingly limiting the available fiscal policy options. Unsurprisingly, US consumer confidence in the economy has fallen to a level usually only seen during recessions.
Meanwhile, global confidence in the reliability of international institutions has suffered greatly. In the US president’s view, the global economy should no longer be governed by rules agreed collectively, but by the law of the jungle. What he fails to see is that this logic is increasingly playing into the hands of others – such as China. The country’s dominant position in rare earths, which are key to many technologies, is impressively showing how power can be exerted through markets.
It’s no wonder gold is one of the standout winners this year. Gold is clearly reflecting the global sense of uncertainty, with gains of more that 55 percent in value in dollar terms, even higher than those made on Chinese stocks. This also benefited our customers in the Swiss and World investment profiles, thanks to an above-average gold allocation relative to the sector. This diversification has again paid off at a time of economic and political uncertainty. Our tactical decision to temporarily increase the gold position above our strategic target weighting made a significant contribution to a higher-than-average return in asset management.
