Global trends shaping the investment landscape

Yves Bonzon, group chief investment officer of Swiss wealth manager Bank Julius Baer shares his views on the world economy, investor sentiments, and emerging trends for the future

Will the upcoming US elections have a major impact on global markets? How do you assess President Trump’s re-election chances?

As we went into 2020, we highlighted the benign macro background we operated in back then. External shocks were pointed out as key risks for this year, including the outcome of the US presidential election. A Democratic victory could entail that we are likely to see more financial repression going forward, weighing on investment returns across all industries.

As far as Donald Trump’s re-election chances are concerned, never before have they been affected to such an extent as by this crisis, neither by the trade war nor by the hopeless attempt by the Democrats to impeach the President earlier this year. Should the economy not recover well in the run-up to the US presidential election on November 3, the US administration is very likely to drop its opposition to another stimulus package. The state of the economy will be a decisive factor influencing the election result.

Gold as a commodity has behaved in an unusual manner during the pandemic. Do you see a reason why it is not positioned as strongly as it should have been?

We indeed get questions as to why gold has not performed even stronger in light of the amount of money printed by central banks and the size of the asset purchases.

Gold and its price drivers are often fundamentally misunderstood. When held in physical form, the most precious characteristic of gold is the fact that it is the only financial asset that is not a claim against something else, i.e. that does not involve counterparty risk. Gold therefore acts as a hedge against systemic risk, which means that in the short term, only a series of policy mistakes triggering a 1930’s style depression would provide additional tailwind.

If the measures to support and stimulate the real economy were insufficient, the real sphere would contaminate the financial system; a scenario in

Yves Bonzon, group chief investment officer Julius Baer

Oil in focus

which gold would benefit. At $1,700 per ounce, gold fully discounts a deep recession. In the medium term, it could print new highs as reflation picks up steam.

What is your advice to investors on a best practice for asset allocation given the current market conditions?

With the Fed holding rates at zero for a very long period of time, there is no alternative to diversified investments.

Fed chairman Jerome Powell promised to raise interest rates only after full employment is restored, which could take several years. Holding cash will therefore not be rewarded for a very long period of time, and I strongly reiterate the call to view the strategic asset allocation, and not cash, as the true benchmark in a world of explicit financial repression.

As such, Powell’s statement is constructive for financial markets, and we therefore stick to our current stance on equities.