CA Indosuez (Switzerland) SA - 2018 Annual Report

16

Indosuez Wealth Management Group

“The level of interest rates in US dollars make short-term investments in this currency look fairly attractive. Moreover, the greenback has been buoyed by the interest rate differential and has proven to be the strongest currency in 2018 except for the Japanese yen.”

- strong monetary stimulus in China by shifting the focus away from the banking sector crackdown while simultaneously revitalising economic activities. The Fed Funds Rate (USD) could reach 3% by the end of 2019 while the ECB's refinancing rate (EUR) could be increased to 0.25%. We think a disorderly Brexit will be avoided, and so the Bank of England is expected to raise rates in 2019. In Japan, the 2% inflation target was put on hold so priority can be given to managing the yield curve. The recent downward revision of wage growth data will only encourage the Bank of Japan to maintain its accommodative monetary policy. Lastly, given Fleming's trilemma (a theory that states that it is impossible to have a fixed foreign exchange rate, free capital movement and an independent monetary policy the same time), the countries that opted to peg their currency to the US dollar will have to follow the United States’ example and tighten their respective monetary policy. This is especially true in many Middle Eastern countries. Ranking followers are having a hard time identifying any asset classes that delivered significant nominal performance in 2018, not to mention real performance. Within the equity space, there are a few rare exceptions such as the Brazilian equity market (+15% in local currency but 1.8% in USD), or the healthcare and utilities sectors outside the emerging markets. On the bond market, most indices recorded overall negative performance. If we measure performance in local currency, we note a few exceptions among US, UK and Economic and Monetary Union (EMU) issues, Investment Grade corporate bonds in Japan and, even more surprisingly for casual investors, Investment Grade corporate bonds in China (+7.1%). These Chinese issues also delivered positive nominal performance in US dollars and in euros. Results were more uneven in the commodities universe. While gold, oil and copper prices all fell, natural gas, wheat and cotton, to mention only a few, delivered positive performances. Financial markets: “annus horribilis”