Chart of the month: Gold, Gold, Gold. Switzerland the quiet giant.

Gold, Gold, Gold. Switzerland the quiet giant.

 

gold Switzerland
Source: World Gold Council, Swiss Federal Statistical Office, Bloomberg, NS Partners. Image generated by artificial intelligence based on author-provided content.

 

The gold rush is back. Gold has climbed to new record highs, emerging as the top-performing asset class year-to-date, with gains above +50% in USD. From private investors to central banks, demand has surged across the board.

Gold remains an ultimate hedge against inflation, currency debasement and uncertainty, a safe harbor when markets tremble. Amid the global search for safety, Switzerland stands out as a quiet pillar of strength.

Did you know that Switzerland holds more gold per capita than any other country in the world?

The Swiss National Bank currently holds around 1,040 tonnes of gold, equivalent to roughly 100 billion Swiss francs in value, placing Switzerland seventh worldwide in total holdings. On a per capita basis, this corresponds to about 118 grams of gold per Swiss resident, which is the highest ratio in the world. Although the Swiss franc has not been backed by gold since 1999, the Swiss National Bank continues to maintain substantial reserves. This reflects Switzerland’s enduring tradition of financial prudence, stability and independence.

This impressive reserve position has a measurable impact. In 2024, the rise in gold prices generated an unrealized gain of CHF 21.2 billion, contributing significantly to the Swiss National Bank’s record profit of around CHF 80 billion. In early 2025, gold prices surged further, adding CHF 12.8 billion in valuation gains in the first quarter, partially offsetting foreign currency headwinds. By mid-2025, after a moderate correction in gold prices, unrealized gains stood at CHF 8.6 billion, confirming gold’s role as a key stabilizing factor in the Swiss National Bank’s balance sheet.

Switzerland’s strength extends well beyond its reserves. The same principles that underpin its monetary discipline are visible across the real economy. A focus on high value-added sectors such as pharmaceuticals, chemicals, machinery and precision engineering has built a foundation of sustainable growth and innovation, rather than reliance on low-margin industries such as automotive.

Resilience is not only an economic story; it is also a market story. Switzerland is a strong economy, with a resilient industry and a robust financial market. Over the past decade, Swiss small and mid-caps have shown consistent outperformance. While this momentum has moderated over the past five years, performance has reaccelerated over the most recent twelve months. Still, it is precisely within Swiss small and mid-caps that the most attractive opportunities reside, featuring hidden champions and niche innovators offering long-term value potential.

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.
© NS Partners Group

Chart of the month: Gold, Gold, Gold. Switzerland the quiet giant.

Gold, Gold, Gold. Switzerland the quiet giant.

 

gold Switzerland
Source: World Gold Council, Swiss Federal Statistical Office, Bloomberg, NS Partners. Image generated by artificial intelligence based on author-provided content.

 

The gold rush is back. Gold has climbed to new record highs, emerging as the top-performing asset class year-to-date, with gains above +50% in USD. From private investors to central banks, demand has surged across the board.

Gold remains an ultimate hedge against inflation, currency debasement and uncertainty, a safe harbor when markets tremble. Amid the global search for safety, Switzerland stands out as a quiet pillar of strength.

Did you know that Switzerland holds more gold per capita than any other country in the world?

The Swiss National Bank currently holds around 1,040 tonnes of gold, equivalent to roughly 100 billion Swiss francs in value, placing Switzerland seventh worldwide in total holdings. On a per capita basis, this corresponds to about 118 grams of gold per Swiss resident, which is the highest ratio in the world. Although the Swiss franc has not been backed by gold since 1999, the Swiss National Bank continues to maintain substantial reserves. This reflects Switzerland’s enduring tradition of financial prudence, stability and independence.

This impressive reserve position has a measurable impact. In 2024, the rise in gold prices generated an unrealized gain of CHF 21.2 billion, contributing significantly to the Swiss National Bank’s record profit of around CHF 80 billion. In early 2025, gold prices surged further, adding CHF 12.8 billion in valuation gains in the first quarter, partially offsetting foreign currency headwinds. By mid-2025, after a moderate correction in gold prices, unrealized gains stood at CHF 8.6 billion, confirming gold’s role as a key stabilizing factor in the Swiss National Bank’s balance sheet.

Switzerland’s strength extends well beyond its reserves. The same principles that underpin its monetary discipline are visible across the real economy. A focus on high value-added sectors such as pharmaceuticals, chemicals, machinery and precision engineering has built a foundation of sustainable growth and innovation, rather than reliance on low-margin industries such as automotive.

Resilience is not only an economic story; it is also a market story. Switzerland is a strong economy, with a resilient industry and a robust financial market. Over the past decade, Swiss small and mid-caps have shown consistent outperformance. While this momentum has moderated over the past five years, performance has reaccelerated over the most recent twelve months. Still, it is precisely within Swiss small and mid-caps that the most attractive opportunities reside, featuring hidden champions and niche innovators offering long-term value potential.

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.
© NS Partners Group

Chart of the Month: April 2025 Inflation & Yield Curve Risks

Chart of the Month:
Inflation and the Yield Curve This Chart of the Month examines whether inflation is truly transitory and what the recent steepening of the US yield curve signals for markets.

April 2025 Inflation & Yield Curve – Chart of the Month

 

Is the inflation transitory this time?

At the press conference after the last FED meeting on Wednesday 19th of March, FED chairman Jerome Powell, used the infamous T word to describe the impact that tariff would have on inflation in the short term. While he could well be right, the use of the term “transitory” for describing inflation was very bold as it revives fresh memories of what is probably the worst monetary policy mistake of this decade.

The FED preferred measure for inflation, the core PCE price index (the dark blue line in the chart) was at 2.8% in February on a year over year basis. This level is not alarming in itself. What is more concerning however is that the inflation has not made further progress since May last year (as reflected by the dark blue arrow on the chart) while still being above the 2% FED target.

As the US growth is showing some signs of weakness and the FED made it clear that they view the recent elevated inflation numbers as only a short-term impact from tariffs, the bond market is pricing 3 FED cuts for the year, which would take the FED fund rate at 3.75% in December.

What does it mean for future inflation and the yield curve? Since the start of the year, the inflation expectations one year from now (the light blue line in the chart) has rebounded from 5% to 6.2% as consumers are getting worried of price hikes. Since inflations expectations tend to be self-fulfilling prophecies, this could trigger an upshot in the core PCE price index.

The yield curve can be approximated by the difference between the 10-year nominal yield and the 2-year nominal yield (the dark grey line in the chart). This measure has gone from -36 bps to +32 bps since last May when disinflation progresses stalled (as shown by the dark grey arrow). And as one of the major drivers for its slope is the inflation uncertainty, we could be witnessing the start of a bear steepening, where the 10-year nominal yield rises faster than the 2-year yield.

This is very important because we have seen previously that a steepening yield curve tend to lead to credit spreads widening (which started this year) and ultimately recessions. While we are not calling for a recession in the US just yet, it is becoming a greater risk amid political uncertainty.

Therefore, stay careful with your credit exposure and watch out for the curve steepening!

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer.  Additional information is available on request.
© NS Partners Group

March general market comments

“Say No Go” – De La Soul, 1989.

March 2025 was a wild ride for financial markets, a bit like De La Soul’s “Say No Go”: trying to reject bad vibes, even when it gets shaky. Caution prevailed at the beginning of the month, but investors were hoping for a smooth jam with deregulation and AI-driven growth to keep the party going; unfortunately, like De La Soul warns about dodging the wrong crowd, trade tensions flared up fast with a 25% tariff hit on Canada and Mexico and a 10% tariff hike on Chinese goods, which triggered retaliation from Canada (25% on US exports) and from China (15% on US agricultural products). Markets went in a “Say No Go” mode, with the S&P500 dipping into correction territory, while the Nasdaq and the dollar cratered.

The Fed maintained its rates steady, with Powell playing cool as he said that the economy was still “plugging in the sunshine”, mentioning solid labor conditions, but inflation refusing to significantly tame led Jerome to rebuff flipping the script.

The S&P500 lost 5.75% in March, the Nasdaq 7.69% and the Stoxx 600 Europe 4.18%. It wasn’t all doom though, as the Japanese Topix resisted somewhat (-0.87%), like China (-0.07%) while the MSCI Emerging Markets rose (+0.38%). In this context, the MSCI World Value outpaced – again – the MSCI World Growth, with a -1.56% return for the former and -7.59% for the latter.

On the fixed income side, Germany’s possibly more relaxed stance on budget deficit, added to looming better prospects for the Old Continent’s economy, pushed yields higher (+33 bps for the German or Italian 10 year yields) on this side of the pond, while they stayed unscathed in the US. After two convincing months, Credit took a hit (-1.3% for the Itraxx Crossover), weakened by a steepening yield curve and increased recession risks in the US. The dollar tumbled 4.21% versus the euro and almost all commodities rose (Oil added 2.47%); Gold is the shining star of the year, hitting record highs above “The Magic Number” $ 3’000 per ounce (+9.3% in March), showing that investors are “Keepin’ the Faith”, even if at these levels “Stakes Is High”. So far it’s “All Good”, but “Watch Out”!

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

February general market comments

“Duel” – Propaganda, 1985

In politics and geopolitics, it often feels like duels prevail: East/West, North/South, Left/Right, Democracy/Dictatorship, Liberalism/Collectivism… And in financial markets too: Bulls/Bears, US/RoW, Developed Markets/Emerging Markets, Large Caps/Small Caps, Growth/Value, Public Markets/Private Markets, Fixed Income/Equities, Gold/Fiat, and the list goes on.

February 2025 has been an eventful month for both geopolitics and markets: whatever the outcome, it seems we might get closer to a peace deal in Ukraine, and if there’s no clarity yet, the Middle East situation evolves rapidly, while markets have performed disorderly, showing some signs of reversals from here to there in the famous duels mentioned above.

First, the longstanding convergence between Italian and German yields blew up, temporarily or not, with a 52 bps spread widening between both last month. Then, after a spectacular rally, Bitcoin’s momentum came to a screeching halt as the crypto lost 17.5% for the month. Perhaps more importantly, in the context of a stable dollar versus the euro, European equity markets largely outperformed the rest of the pack: the Stoxx 600 added 3.3% in February and is now up 9.8% year to date, which can be compared to -1.42%/+1.24% for the S&P500, -3.82%/-3.69% for the Topix and +0.35%/+2.02% for the MSCI Emerging Markets.

Europe tends to be seen as a Value play, with large weightings in Financials, Energy, Staples and Utilities, which can explain the strong show from European equities, corroborated by another reversal in the secular duel between Growth and Value: the MSCI World Growth lost 2.89% in February and is down 0.33% year to date, while the MSCI World Value returned 1.43% and is up 5.89% for the year.

Most S&P 500 companies have reported their Q4 2024 results, and a striking fact is that, for once, the Magnificent 7 struggled in terms of performance; results and outlooks were mostly fine, but Meta is the only member of the club showing a positive return year ta date; what a difference when compared with the last 2 years!
Finally, Gold shone again and added 2.12%, Oil tumbled 3.82%, and Credit posted a decent month with a +0.43% return for the Itraxx Crossover, in the midst of very narrow spreads.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

January general market comments

“Ballroom Blitz” – The Sweet, 1974

China’s announcement of its LLM tool DeepSeek has been felt like a massive blitz in the global AI ballroom in January 2025. Supposedly way cheaper and less resources consuming (semiconductors and power) than its US equivalents, the DeepSeek bombshell triggered a vast series of questioning about the – so far – winners in the AI space, from chips manufacturers to industrial companies offering data centers cooling and utilities, among others. This, added to the looming tariffs from the US administration towards many of its trading partners, has generated a lot of volatility in global markets, which have nevertheless shown surprising resilience in such a context. Earnings releases have probably helped equities in this environment: in most instances they were good, even if, in some cases, outlooks were less buoyant than expectations (but still showing solid growth in general). Perhaps the continued strength in Gold (+6.6% in USD) and Bitcoin (+9.0% in USD), unbeknownst almost all major currencies, should be an indication that there are some signs of nervousness among the investment community.

The MSCI World rose 3.5% in January, nicely helped, for once, by Europe (+6.3% for the Stoxx 600) which has outpaced the S&P 500 (+2.7%). Despite DeepSeek’s smash, the Chinese market was weak with a 3% fall for the CSI300, and more generally Value outperformed Growth (+4.4% versus +2.6%), the latter having painfully felt Nvidia’s 10.6% retreat. It is noticeable that among European markets, the defensive Swiss equity benchmark SMI was the star of the month with a 8.6% return, reversing part of 2024’s underperformance.On the fixed-income side, yields stayed mostly put, while Credit started the year with a nice show, as highlighted by the 1.25% increase for the Itraxx Crossover. Oil rose 1.1%, and the dollar lost some modest ground versus the Euro, the Yen and the Renminbi.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

December general market comments

Dance across the floor – Jimmy “Bo” Horne, 1978

When Jimmy “Bo” Horne wrote this song in 1978, the “floor” still prevailed on the New York Stock Exchange; this was the place where most of the equity transactions were done, with traders and brokers actively buying and selling stocks. A decisively good year for equities traditionally ended with a festive atmosphere on the pit. Electronic trading has gradually started to supplant physical trading in the 80s, and has now almost entirely replaced it. With 2024 marking a very rare back-to-back 20% + yearly return for the S&P500, we can imagine that traders and brokers would have danced across the floor on the 31st of December, especially that, despite Covid, interest rates, inflation and geopolitics, the index has delivered a whopping 186% price performance since 2014.

Things could even have been better if December 2024 had not been a poor month for equities in general; the US economy is still defying the Cassandras, marking a sharp contrast with most regions. Fed’s ample easing expectations are being rattled down, with higher yields and a much stronger USD as a consequence. To wit, the US 10 year yield rose by 40 bps (+28 bps for the Bund), and the broad dollar index soared 2.6% (underneath the surface, the Euro was down 2.16%, but the Yen tanked 5.07%). WTI caught up 5.47% and ends the year flattish, Gold receded a tad (-0.7%, but still +27.2% for the year) and credit was barely down in an overall pretty positive year (+7.2% for the Itraxx Crossover in 2024).

When it comes to equities, very often does December confirm, and sometimes amplify, the general trends observed during the previous 11 month of any given year. 2024 was no exception, as, even if the market struggled contrarily to the rest of the year, style and sectors stubbornly maintained their trajectory. The nascent reversal triggered by Mr Trump’s win (the “Trump trade”) entirely faded and market polarization came back in force. Growth smashed Value with the Nasdaq up 0.4% versus -2.5% for the S&P500, but more striking is the performance gap between the MSCI World Growth and the MSCI World Value: +0.4% for the former and -5.8% for the latter in December, and +25.1% versus +9% in 2024, an incredible 1610 bps difference! Needless to say that winning Growth stocks, and among them the Magnificent-7 (or possibly the “Heavyw-8” with the addition of Broadcom), are in the US, which explains the vast outperformance from US equities versus all other markets so far.

That’s it for this month’s Market Comments, stay tuned, markets never skip a beat.

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Quarterly Investment Review – Q4 2024

We don’t have inflation because the people are living too well. We have inflation because the government is living too well.

Ronald Reagan

All Government spending is taxation

Elon Musk

We all know what we need to do as politicians, we just don’t know how to get elected after we have done it.

Jean Claude Juncker

Quarterly Investment Review – Q4 2024

2024 saw the financial trends of 2023 extended. Equity markets produced strong returns, led by the US indices, with most of these returns generated by the giant technology companies. Performance was particularly strong after the victory of President Trump in the US Presidential election in early November. Most other markets in Europe and the Emerging world were more subdued. The US bond market suffered an unprecedented fourth year of decline. The US dollar remained strong against most of its international rivals, and gold had a strong return. Most remarkable was bitcoin which rose 120% during 2024.

The last quarter was dominated by the US election and Trump’s comprehensive victory. Unusually for a Republican candidate, he won the popular vote, as well as making a clean sweep of Congress, giving him a strong mandate to implement his policy platform. The result was a vote for less Government, and markets celebrated the promise of deregulation and lower taxes. The expected boost to growth is supportive of equities. So far markets have been unconcerned by the less market-friendly protectionist threats of the incoming Administration, such as the promise to curb immigration and impose draconian tariffs on foreign goods, both of which could increase prices. It is hard to say the extent to which these measures will be implemented. Judging by his first term Trump is more fluid in his policy making than other Presidents, and he will start this Administration with a different set of circumstances to his previous one.

Click here to download the full document.

 

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Quarterly Investment Review – Q3 2024

Quarterly Investment Review – Q3 2024

Markets rose during the third quarter as most Central Banks started to ease policy by cutting interest rates, causing the yield on the US 10-year bond to fall from 4.40% to 3.78%. Stock markets moved up in tandem with the rate cuts, but this masked significant gyrations in early August. The combination of falling US interest rates and rising Japanese rates caused the yen to rise dramatically, and the Japanese market crashed 22% in three days. The VIX index, which measures volatility, reached its third highest ever reading. Most of these moves occurred within a few hours on the 5th and 6th August in thin trading, and the recovery was equally abrupt. By the end of the month the Japanese index had recovered everything when measured in dollars. However, the size of the moves indicates the potential vulnerability of markets even with relatively minor disruptions.

The rise in Japanese interest rates marks the end of the last source of free money in global markets. Since 2008 global Central Banks have kept interest rates close to zero and provided plentiful liquidity. The inflationary burst in 2022/23 brought this to an end and led most banks to raise interest rates and rein in liquidity, except in Japan. Japan was more reluctant to normalise its policy because it has spent the last thirty years escaping from a debt and deflationary bust caused by one of the largest property and stock market bubbles in history that peaked in 1989. It cut interest rates to zero in 1997, and from 2013 adopted an aggressive printing policy. As a result, Japanese money was pressured into seeking returns elsewhere, and Japanese liquidity has flooded world markets. These flows have supported asset prices but may start to retreat. Meanwhile the summer saw other developments. There were increasing signs that the US economy was less strong than previously thought with a record revision of US jobs numbers, and China’s economy has continued to disappoint. There were also signs that the dominance of the massive technology companies may be starting to wane. These three areas have been the major supports to the bull market in the last decade, so if they are deteriorating it will have significant implications for investors.

Click here to download the full document.

 

 

 

 

 

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Quarterly Investment Review – Q2 2024

Quarterly Investment Review – Q2 2024

“Americans prefer strong and wrong to weak and right.” Warren Buffett

The second quarter was an unsettled one. The bond market rose modestly. In April the technology sector fell sharply before rallying strongly over the rest of the quarter. Most of the rest of the market did the exact opposite. In a year full of elections, the Indian result surprised with Prime Minister Modi experiencing a setback. In the European parliamentary elections, the parties with more nationalist tendencies did well, and in France this triggered a further election to take place in early July. As we enter the third quarter the US Presidential elections in November will start to dominate headlines in what looks a close race between two ageing and uninspiring candidates. Political uncertainty looks set to continue.

Election years tend to witness heavy spending because democratically elected Governments choose fiscal misbehaviour over unpopularity every time. There has been a relentless deterioration in western Government finances. US Federal spending increased 22% year over year to May and is up 55% since 2019 while the population has grown only 2%. The Federal debt has risen from 30% of GDP to 120% since the late 1970’s. As interest rates rise the government is being hurt as much as anyone. US Government debt now stands at $34.7 trillion and is increasing at a rate of $1 trillion every 100 days. If it had to pay 4.5% (the current two-year rate) on all of that, then that implies $1.56 trillion of interest payments annually. This sum is equivalent to the GDP of countries like Australia or South Korea. US economic growth has been exceptional over the last five years, adding approximately $6 trillion of GDP, but how much of this growth is due to fiscal spending?

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