Monthly comment March 2023

Index

• Markets
• Economy
• Geopolitics
• Conclusions
• Allocation
• Market data
• Event calendar

Markets

The month of March 2023 will be remembered in the annals of American financial history as the month of several bank failures of medium-sized banks, while in Swiss financial history it will be remembered as the month of the controlled failure of Credit Suisse.
The aforementioned events significantly affected the performance of markets, both stocks and bonds, throughout March and caused high volatility in the financial sector as not seen in several years. In the days of extremely high tension experienced in the second half of the month, scenarios seen during the great financial crisis of 2008, when the failure of a U.S. bank unleashed contagion on the entire sector on a planetary level, came to mind again. Fortunately, this time, regulators and central banks showed that they had learned their lesson and acted quickly and incisively, so that a widening of the crisis was avoided, which, however, claimed excellent victims, as precisely we said, Credit Suisse.
That said, the month closes with slightly positive performance on almost all major markets: the S&P 500 index performs just under 2 percent, while the Nasdaq performs about 7 percent; in Europe, the Eurostoxx 50 closes the month positive by about 0.5 percent. The European financial sector, which has been particularly hard hit by this crisis and until the beginning of March had been one of the best performing sectors in the entire market, ends the month with a negative performance of about 14%, but still remains positive since the beginning of the year by about 3%.
On the bond front we had strong movements in rates, the likes of which we have not seen in over forty years, with the 2 to 5 year part of the curve falling significantly against both the dollar and the euro. Markets at this point are discounting much less restrictive monetary policies as early as the second half of 2023, this goes against the rhetoric of central banks who keep repeating that rates will remain high for a long time. The fall in rates has encouraged a recovery in bond valuations especially on bonds with high rating standing while on other bonds this has been negated by widening credit spreads. One debt category particularly hard hit by the crisis was subordinated financial bonds, which suffered sharp declines during the month after the Swiss bank regulator, in the Credit Suisse bailout, intervened by resetting the value of AT1 subordinated bonds issued by Credit Suisse; currently the subordinated bond market has stabilized and recovered some of the lost ground.
The market stress seen during the past month has also led to a noticeable rise in precious metals and cryptocurrencies; gold has gained more than 5 percent, silver more than 11 percent, and Bitcoin and Ethereum have seen increases in value of 2 percent4 and 14 percent, respectively. 

Economy

On the economic front, we saw the central banks of the major economic areas at work in March 2023. The Federal Reserve raised benchmark rates by 0.25 percent to 5 percent; the European Central Bank raised rates by 0.50 percent to 3.5 percent; and the Swiss National Bank also raised its benchmark rate by 0.50 percent to 1.5 percent. The message given to the market by the central banks was unambiguous, and the main objective remains the battle with inflation, which has shown a downward trend in recent surveys. As far as economic growth is concerned, we are waiting for the closing data for the first quarter, which will be published in mid-April, and the forecast is for a decline in growth globally compared to the last quarter of 2022. The United States is expected to grow by 1.3 percent, Europe by 1 percent, and countries such as China and India are expected to grow by 3.4 percent and 4.5 percent, respectively.

Geopolitics

The international geopolitical situation continues to be very tense. The war between Russia and Ukraine has seen the entry of China in the role of a new mediator, but the two sides still remain with very distant positions. On international geopolitical balances, the development of new alliances in the Middle East area between Saudi Arabia and Iran should be noted. These two countries, which have been antagonists for years, have put in place cooperative agreements on several fronts. This is part of a larger development of alliances involving not only these two countries but also China and other Southeast Asian countries.
Regarding the importance of this new geopolitical bloc being formed between the Middle East and Asia, we point out that Saudi Arabia has entered into contracts to sell oil to China using the Chinese currency, the Renminbi (Yuan), rather than the U.S. dollar, as its settlement currency. In addition to this, the fact that France bought a large amount of liquid gas from China in recent days, paying for it in Yuan, made the news.
Globally, we thus see how the project of "dedollarization" of important geographical and economic areas has now become a real and irreversible project.

Conclusions

Financial markets, viewed from a medium- to long-term perspective, remain in a recovery phase after the very bad 2022. The latest events are also, for the time being, to be seen as a setback to this recovery movement. The major stock exchanges continue to be in a positive trend and expectations are for growth in the coming weeks as well. The bond market remains consistently attractive with very attractive yields especially on bonds with maturities up to 5 years. Here again, after the very volatile movements seen during the month, we expect a return to normalcy and believe that the market offers some very good opportunities at the moment. Precious metals and cryptocurrencies have demonstrated at this juncture that they are alternative assets intended as safe havens. Again, we maintain our positions with the idea that there may be positive developments in the coming weeks.

Allocation

Liquidity

Bonds

Equity

Precious metals & Commodities

Geo-tactical allocation

Switzerland

Western Europe ex Switzerland

North America

Latin America

Asia Pacific

Top sectors

1. Energy
2. Industrials
3. Information Technology

Market data (data as of 31.03.2023)

Event calendar

Legend