The Swiss asset manager Bantleon has reduced its overweighting in equities.

He wants to further reduce the equity quotas in the next few months.

Bantleon's chief economist Daniel Hartmann cites the weakening economy as the reason.

In doing so, he looks at the purchasing managers' index for industry, which in Germany peaked in spring at 66.6 points in his opinion.

“Our own, far-sighted leading indicators predict a downward trend over the next few months.

We are forecasting the first noticeable minus for July, ”says Hartmann.

Markus Frühauf

Editor in business.

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For him, a downward trend in economic indicators does not automatically mean that a bear market is imminent.

All that is clear is that smaller rolls need to be baked in the stock markets and other risky assets.

According to the forecast of the Bantleon chief economist, the price increases will in any case be significantly smaller in the second half of the year than in the first half of 2021 or in the second half of 2020.

Setbacks are likely to occur more and more frequently, adds Hartmann.

Since the Corona crash in March 2020, the Dax and Euro Stoxx 50, the leading index for the euro area, have increased by around 70 percent, and the Swiss leading index SMI by 55 percent.

Correction threatens with fears of a recession

According to Hartmann, whether there will be a sustained correction on the stock market with a price decline of more than 20 percent depends on the steepness of the economic downtrend. In their base scenario, Bantleon's asset managers are only preparing for a mild slowdown in growth. Hartmann considers the spread of the delta variant of the coronavirus as a risk scenario, should this push the purchasing managers index towards 50 points in the coming months and arouse fears of recession.

Mark Holman, CEO of the asset manager TwentyFour Asset Management, a subsidiary of the Swiss bank Vontobel, is expecting unrest in the markets in the coming weeks. The markets have largely recovered since the economic slump last year. A substantial recovery was therefore priced in almost continuously and in full by the market participants. "However, it is possible that this recovery will not prove to be as strong as the markets initially anticipated, especially after the economy has fully reopened," said Holman.

In his opinion, this can be seen in the economic indicators from China, which led the central bank to cut the minimum reserve ratio at the beginning of the month.

After all, the markets underestimated the potential effects of the delta variant on the growth figures in the third quarter.

Developed countries currently seemed to be taking the approach of allowing the virus variant to spread through the population and hoping that the success of the vaccination campaigns would keep hospital admissions and mortality rates low.

Supply chains continued to be disrupted

This strategy may ultimately work, but two main factors are currently preventing significant parts of the workforce from being able to go about their work: infection with the disease and the domestic quarantine that would then be required. At the same time, mortality rates rose in all those countries where vaccinations were less advanced and drew different responses from the authorities. In addition, the economy has not yet regained its full production capacity, so that disrupted supply chains can still be expected, Holman expects.

"It's getting hot" is the title of the current market commentary by Chris Iggo, chief investment strategist at Axa Investment Managers. He also cites the spread of the delta virus as the cause of the increasing worries on the stock markets. This makes people aware that the fight against the pandemic is far from over. According to Iggo, the rapid spread of the delta variant could affect the relaxation of corona measures as well as the supply of goods and workers and put the health systems under pressure again. Despite these concerns, the macroeconomic outlook appears to remain positive as equity and credit markets recover. Monetary policy will remain expansionary for Iggo. The markets would only have fully priced in a rate hike in the United States in early 2023.

The investment strategist sees the fact that inflation expectations for the American economy have fallen significantly on the financial markets since their peak in May as an indication that the bond market is no longer expecting overheating. Iggo thinks it is possible that the yield on ten-year US Treasuries could soon hit 1 percent again. On Tuesday it was 1.25 percent. At the end of March, when inflation worries still predominated, the return was still 1.76 percent.