The renaissance of the competitiveness of the Chinese IT sector and the first steps to overcome the real estate crisis in the People's Republic of China open up new perspectives. In our Asset Allocation Update for March, we are increasing our equity allocation via emerging markets and taking profits in other areas.
Text: Nicola Grass
European equity markets continued to rise in February, while the American Magnificent 7, or "Mag7," have been moving sideways so far this year. However, Chinese equity prices, particularly IT stocks, have risen significantly. One of the main drivers is the announcement of the advantages of DeepSeek over other AI systems at the end of January. Confidence was also boosted by the meeting between President Xi Jinping and the CEOs of Chinese technology companies. This seems to have marked a turnaround for technology stocks (+26%).
In recent years, China's heavy weighting, with a drawdown of 64% (MSCI China February 2021 – October 2022), has been a significant drag on emerging market equities. However, there now seems to be some movement in the Far East. Western investors' purchases have increased significantly since mid-January, and the previously extremely negative sentiment is brightening.
As positioning among Western investors remains low and valuations are comparatively attractive, the catch-up rally could continue. Therefore, we are increasing our overweight in emerging markets.
Within global equities, we are reducing our small-cap bias. While we remain underweight in the Mag7, we are now playing the better market breadth primarily through financials, UK, US mid-caps, and emerging markets.
In bonds, we are swapping euro government bonds for Australian government bonds. The yield level is significantly higher there (4.4% yield vs. 2.5% yield), and we see appreciation potential for the Australian dollar. Our underweight in CHF and corporate bonds remains.
Its End The dominance of the US in economic growth and stock market performance is waning, and Trump's tariff shock is priced in. The interest rate advantage over Japan continues to shrink, and we expect a USD/JPY rate of 140, which corresponds to a further appreciation of the yen by 6%.
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