Current view from Zurich Investments
In this month’s issue we discuss current view from Zurich Investments
The following notes are a summary from last week’s Investment Conference held in the Shelbourne Hotel. Presentations from Guy Miller, Chief Economist, Zurich Group and David Warren, CIO, Zurich Life, Ireland:
Guy Miller
We are currently seeing global markets in a state of flux and as we head into H2 2025:
-Erratic US policy still dominates and is keeping markets volatile
-However, markets matter and will likely curb the most disruptive policy initiatives, a la bond markets driving the 90 day reprieve
-Collateral damage has been done and global growth will be lower, albeit avoiding recession
-Central Banks will continue rate cutting
-US exceptionalism is not dead, but is being reset
On the 2nd of April US tariffs went from 2.5% to 28%
-But ultimately will be paid for by US corporates and consumers
-US had to back down v China which can, and has, played hardball, thankfully
-Discussions with major trading partners are ongoing
-Large surge in EU exports as companies stockpile, from Champagne to pharma
-Europe has been forced to change and Germany has announced a major €1tr spending programme
-US households are worried and US SMEs are reluctant to invest, both will impact growth negatively
-We have seen Walmart and Ralph Lauren warn of tariff effects
-US debt issues have now come to the fore as the cost of servicing soars (maturing debt has to be replaced at higher rates) and is now a bigger spend than defence
-US debt has an average term of 7yrs v global of 15yrs
-Longer rates have crept up as buyers see risks have increased so want a higher return
-Current US equity risk premium has narrowed and is now a headwind for equity markets
-If risk free is 5%, not as inclined to buy equities
-US recent policy and actions have led to a tilt to other markets, the US is now not the only game in town, and Europe, especially Germany, having a stronger 2025
-But….. EU earnings haven’t kept up with price action, pricing in some future earnings growth
David Warren
-Debt matters and we have identified high US debt as a risk for some time and is now coming to the fore as a concern
-Bonds matter as Government and CB policies drive long-term rates and higher rates are a challenge for equities
-Risk free is more attractive at higher levels
-Higher borrowing costs and discount rates
-Debt levels impact yields and US is high and rising
-Inflation expectations impact yields and we are currently thinking medium term expectations are at reasonable levels
-As markets fret over US debt as costs and levels soar
-However there are some underlying positive signs
-US private debt, personal and corporate, is at very manageable levels
-Governments, including US, are holding/buying a lot less debt post-COVID
-We have moved to a slight u/w position in equities in multi-asset funds and have increased cash
Conclusions
-Global growth to be below trend in 2025 and rising towards trend next year
-Monetary policy to continue to ease this year
-US policy will be erratic and cause short-term volatility
-Risks associated with US debt levels are rising
-Ultimately we see lower US yields ahead albeit short-term could remain choppy
-A transition to more sustainable debt dynamics is desirable and it is possible, but is there an appetite?
-The US debt issue has become a higher focus in recent weeks but is not dominant in our thinking as we see structural value in risk assets
-Equities will require regional and sector diversification and likely to remain bifurcated and choppy in the near term
-We have active levers to use and volatility will bring opportunities and we will look for equity opportunities
To find out more about the latest investment news please do not hesitate to contact a member of our advisory team at Jim@hegarty.ie, Niamh@hegarty.ie, Frank@hegarty.ie & Ross@hegarty.ie or alternatively you can call the office directly on 01 4972544.
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