Focus on China
While the stock markets in the US, Europe and, above all, Japan continued to rise over the summer months, the Chinese market has been shaken up considerably. The political leadership in Beijing has caught many companies and investors on the wrong foot with drastic regulatory interventions. Technology companies such as Alibaba have lost ground, and only very few shares were able to withstand the downward pull. Measured by the index, the entire Chinese stock market has lagged the global market by around 40% this year.
We believe that now is a good time to add Chinese equities to the portfolio with moderation. However, we are not blindly betting on the entire market, but are concentrating on companies which are most likely to benefit from the new political goal of a fairer income distribution. These are especially companies in the consumer goods sector. On the other hand, those with monopolistic market positions, particularly in the technology sector, or companies in the real estate or oil sector are likely to remain under pressure. That is due to the threat of additional regulatory intervention or higher taxes.
On the other hand, we are halving our overweight in European equities. The European market has risen strongly since the beginning of the year. Although we still see potential for Europe, the outlook is not quite as good as it was a few months ago. This is because valuations have risen in line with the price development. Also, new travel restrictions due to the Corona pandemic threaten to slow down the economic momentum.
We are leaving the rest of the portfolio unchanged. We consider government bonds unattractive. Alternative investments such as gold and ILS remain interesting.