Affordable Healthcare Stocks for Economic Slowdown
The valuation of the global pharma sector has significantly dropped due to political risks in the USA.
Asset Allocation Update: Weaker Economy, Earnings Growth in Focus
Stock markets faced further losses in March due to a looming economic slowdown in the USA. Is the correction over, or are we heading into a recession? In our Asset Allocation Update for April, we remain overweight in emerging market equities and are adding CHF bonds following the recent yield increase.
Text: Nicola Grass
What adjustments have we made to the portfolios?
Equities: Rotation Continues
The extraordinary preferential position of the USA in recent years with its robust economy and dominance of IT stocks further weakened in March. On one hand, consumer sentiment appears to be faltering, possibly due to announced public spending cuts, but more likely due to recent wealth losses in the stock market (-10% since the end of February). On the other hand, investors, including those from the USA, have increasingly turned to other more affordable markets.
The performance difference since the beginning of the year between US stocks and those from the Eurozone is striking: -2% versus +11%. Nevertheless, the situation is not alarming: we still expect respectable GDP growth of around 2% for the USA this year, and corporate earnings are expected to grow by around 10%, thanks in part to profitable companies beyond Big Tech.
We maintain a neutral weighting for developed market equities at the strategic quota. We remain overweight in the very affordable emerging market equities, which are now gaining momentum and benefiting from a weaker US dollar.
Pharma & Semiconductors
Our preference in equities has shifted to pharma. The sector is currently trading at a historically unusual discount (P/E 17 vs. 19 globally). Prices have now stabilized, and the looming economic slowdown could attract inflows again. We expect very high earnings growth of 19%.
Semiconductors: Following the correction in the semiconductor sector, the valuation is now not much higher than the overall market (P/E of 21 vs. 19). However, earnings growth remains strong at over 30%. We are betting on a short-term rebound.
Indexed profit growth. Source: Bloomberg
Swiss Franc & CHF Bonds
Following the sharp rise in bond yields in Europe due to announced fiscal packages, we are adding bonds. We are reducing our underweight in CHF bonds, as we consider the yield increase there to be unjustified. Switzerland remains extremely stable in terms of inflation and debt. We maintain our overweight in global government bonds compared to corporate bonds.
After recent losses in the CHF (e.g., EUR/CHF at 0.96), we are now moving to an overweight position. Due to its locational advantages, the franc remains fundamentally attractive.
Gold
Although we expect a price increase in gold structurally due to the demand for safe assets, our indicators suggest that there is currently too much optimism. The gold price has risen by over 17% in Q1 to a record price of over USD 3,100. Therefore, we consider the precious metal to be overbought in the short term and are tactically moving to a neutral position. We remain cautious with other commodities, as we do not consider the recent price increases in agricultural goods and natural gas to be sustainable.
Tactical Asset Allocation in April 2025
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