Over the past few days, financial markets worldwide have suffered noticeable losses. These developments are attributable to strong fluctuations in the Japanese yen, a weakening of the US economy and disappointing quarterly figures from major technology companies such as Microsoft, Amazon and Intel. The defensive orientation of PostFinance's portfolios has proven to be stabilizing in this environment.
The strongest focus is currently on the performance of the Japanese yen. After falling sharply in value in recent years, the yen has been on the road to recovery since mid-July. This trend has strengthened further in recent days after the Japanese central bank raised its key interest rate for the second time this year last Wednesday. The Japanese yen has appreciated by more than 4.5 per cent against the US dollar since Wednesday, 31 July 2024, and by almost 10 per cent since mid-July, and is now almost back at the level seen at the start of the year.
These sharp appreciations are particularly relevant for the financial system, as the Japanese yen was until recently very attractive for so-called "carry trades" due to low interest rates and the continuous decline in value against the other major currencies. This involves investors borrowing cheaply in the Japanese currency and then traditionally investing in assets in another currency, such as American equities. However, such leveraged investments are highly risky. This is because if the Japanese currency appreciates sharply, repayment becomes more expensive. Borrowers quickly come under pressure and may be forced to sell the invested securities quickly. This leads to painful losses in value on the investment side.
The outlook for the global economy, which has deteriorated noticeably over the past week, continues to be a burden. Numerous economic figures were published that point to a noticeable weakening of the US economy and at the same time make it clear that the weakness in the European and Chinese economies is likely to continue.
There have also been disappointing corporate results in recent days and weeks. Skepticism has increased, particularly among large technology companies, as to whether the massive investments in artificial intelligence (AI) will actually be reflected in strong sales figures in the near future and justify the expectation of sharply rising profits. This has triggered massive price losses for heavyweights on the US stock market. Nvidia's share price, for example, has fallen by almost 20 percent in the past three weeks.
At PostFinance, we have been pointing out the risk of a slowdown in the US economy for some time. We have also been observing the optimistic financial market trend, particularly in technology stocks, with a healthy degree of skepticism. This is reflected in our portfolios, in which we have favored value stocks, the defensive Swiss equity market and emerging market equities, while we are underweighted in US and European equities. This cautious positioning has proven advantageous in the current market situation. In view of recent developments and the renewed tensions in the Middle East, we are maintaining this positioning.
