Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
Whilst this is a sobering assessment, it does reflect the realities. Despite the geopolitical conflict in the Persian Gulf and around the Strait of Hormuz, 2026 has so far clearly exceeded the original return expectations for higher-risk asset classes. Numerous equity market strategists have revised their year-end targets for the S&P 500 Index upwards on several occasions. And although the fundamental conditions have deteriorated somewhat as a result of rising oil prices and accelerating inflation, global economic growth of around three per cent is forecast – driven by the AI investment cycle, the stable labour market and consumer spending that has remained robust so far – and the likelihood of a recession is considered low.
However, there are significant divergences between the world’s regions. The eurozone, for instance, is once again the hardest hit, given its high dependence on energy imports. Furthermore, the ECB was forced to act in response to the inflationary risks and has raised key interest rates. In Asia, China and Japan have come through the recent energy crisis largely unscathed, partly due to their enormous strategic oil reserves. As for global macroeconomic data, leading indicators have only weakened temporarily and have returned to expansionary territory relatively quickly. Analysts’ estimates for corporate profits have also remained at a high level so far, which is currently largely attributable to the momentum among semiconductor manufacturers, who are benefiting particularly strongly from the AI boom.
Sentiment on the capital markets has been consistently positive, apart from brief interruptions, and largely unaffected by geopolitical upheavals, as recently demonstrated by the euphoria surrounding SpaceX, the largest initial public offering in history. As the future of the “US deal” with Iran remains unclear and global supply chains continue to face challenges, the economic recovery in the eurozone remains uncertain. However, falling price indicators could help to ease the pressure on central banks. We remain slightly more heavily weighted towards equities (relative to bonds).
Overview of asset classes
French and German bonds remain in focus
We are increasing our exposure to German government bonds and are therefore, overall, holding an above-average position in French and German government bonds, whilst we are currently taking a cautious approach to US government bonds. We continue to regard Australian government bonds as attractive. We acquire US government bonds exclusively in exchange for German government bonds and higher-risk bond assets (US high-yield and emerging-market hard-currency bonds).
Corporate bonds do not price in any significant risks
We are cautiously positioned in US high-yield bonds and euro-denominated investment-grade corporate bonds. Their spreads have been stagnating at historically very low levels for the past few months. Corporate bonds therefore do not price in any significant default, credit or liquidity risks, yet continue to offer attractive yields.
Emerging-market bonds continue to perform well
Emerging-market hard-currency bonds remain strong following a brief period of weakness at the start of the year, with their risk premiums trading close to historic lows. Much like in the equity markets, emerging-market bonds are performing exceptionally well relative to developed-market bonds. Nevertheless, we believe that EM bonds are overbought and remain cautious on this asset class.
Sentiment optimistic so far
Despite the persistently challenging news flow regarding the Iran war, international equity markets have performed very positively in recent weeks. The outlook for expected earnings growth likely provides the most important explanation for the firm equity markets. In this environment, central banks will postpone interest rate cuts or potentially even respond with rate hikes. In the short term, sentiment appears somewhat optimistic; given the support from the earnings side, we remain cautiously optimistic on equities.
Emerging market equities swept up in AI euphoria
Emerging market equity markets have also been completely swept up in the AI euphoria. Chip manufacturers, in particular, have recorded strong performance gains year-to-date. As these are heavily concentrated in the South Korean equity market, this market is the biggest winner. The momentum currently being generated in this sector is also very clearly evident in the year-to-date performance of the various sectors. The IT sector, for instance, has delivered a return of more than 80 per cent since the start of the year.
Commodity markets have been somewhat weaker recently
International commodity markets have recently been somewhat weaker. A strong start to the year for precious metals has been followed by a consolidation of prices in recent months. The risk premium on energy commodities has recently been largely priced out following the easing of geopolitical tensions between the US and Iran.