Capital market commentary from Karin Kunrath, Chief Investment Officer of Raiffeisen KAG
All the crises of recent years have shown that resilience has increased and that level-headed market participants are willing to bet on an improvement in the situation in the foreseeable future and to look past the respective turbulence as soon as a crisis has stabilized and is no longer escalating. The hoped-for improvement has always materialized in the past.
For example, if we look back to March 2020, in the midst of the COVID-19 crisis, vaccinations were initially expected only within a 12- to 18-month timeframe, whereas effective vaccines were actually available as early as December of that same year. When a global energy and inflation crisis followed in February 2022 with the outbreak of war in Ukraine, and restrictive measures by central banks further slowed the economy, much was written about a recession, and in some cases, one did occur. However, this was not the case for corporate profits, which—at least in the U.S.—declined only marginally.
Following Liberation Day in early April 2025, which saw the announcement of completely unrealistic U.S. tariffs harmful to global trade, subsequent bilateral negotiations resulted in concrete tariff agreements at acceptable levels. Growth forecasts have also dimmed as a result of the current crisis in the Persian Gulf, yet the capital market is once again proving remarkably resilient, especially since there are signs of de-escalation and the prospect of a negotiated solution of some kind.
Prior to the war in the Gulf region, the global economy was in good shape; dependence on oil has declined sharply over the past decades, and corporate profits are dominated by (U.S.) firms that are largely independent of the general economic situation. The phenomenon of the “K-shaped economy” is also expected to keep the U.S. economy in positive territory to such an extent that, while temporarily higher fuel and living costs will certainly have a significant impact on the general consumer climate, growth will nevertheless be sustained, particularly due to the enormous investments in AI. As part of our tactical asset allocation, we are once again overweighting equities, particularly due to robust corporate earnings.
Overview of asset classes
French and German Bonds Remain Attractive
We remain positive on French and German government bonds, while we are primarily cautious regarding U.S. government bonds. Australian government bonds also remain of interest to us.
We find U.S. government bonds attractive only in exchange for riskier bond assets (U.S. high-yield bonds and emerging-market hard-currency bonds).
Market is pricing in a “best-of-all-worlds” scenario
The market has recently been pricing in a “best-of-all-worlds” scenario again. Yes, the fundamental situation looks good, but optimism among spread investors appears extremely high. High-yield credits are pricing in virtually no significant default, credit, or liquidity risks. While equity markets can continue to rise in the wake of their (profitability) growth, the fundamental risks of corporate bonds can hardly decline any further.
Risk Premiums Fall Again
Contrary to our expectations, risk premiums on emerging market hard-currency bonds have fallen significantly again since mid-April. Although emerging markets were fundamentally hard hit by the effects on the energy market (Iran/U.S.), this did nothing to dampen the optimism of emerging market investors. We believe that the current spread levels for emerging market hard-currency bonds are unsustainable in the medium term.
Developed stock markets remain very buoyant
Despite the difficult news regarding the Iran conflict, international stock markets have remained very buoyant in recent weeks. A look at expected earnings growth likely provides the most important explanation for the firm stock 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; however, given the support from the earnings side, we have now slightly increased our allocation to equities again.
Asia as an AI Powerhouse
Emerging market equity markets have also successfully weathered the slump triggered by the Iran conflict. Their positive relative performance compared to developed markets is also continuing. This demonstrates that the Asian region is also a global AI powerhouse. Valuations for both emerging markets as a whole and for individual countries are more attractive than in many other regions and point to stronger (earnings) growth.
Optimism for Global Growth Drives Industrial Metals Higher
International commodity markets have recently been mixed. Following a weaker phase for precious metals in recent months, prices have recently risen again. The risk premium on energy commodities has recently been partially priced out. In contrast, optimism regarding global growth has driven industrial metals higher.