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ETHENEA on the upcoming G20 Summit

Munsbach, 28 June 2019 – At the latest G20 summit taking place in Osaka today and on Saturday, the most important event from an economic point of view, is likely be a meeting between U.S. President Trump and his Chinese counterpart Xi. At the start of June, markets had little confidence that the trade conflict between the two countries would ease any time soon. Worse still, additional tariffs were considered likely. However, in the lead up to the summit, markets have become increasingly optimistic that the imposition of further tariffs can be avoided and that these two rivals will move closer to reaching an agreement on new trade principles. We share this optimism to some extent, but we have concerns that the financial markets have already priced in too much positive news. As the S&P 500 has gained more than 6% since the beginning of June, we recently reduced our equity position as we expect that markets will not be able to sustain these recent gains.

While we believe there will be a truce between the trade rivals, we expect that the road to a lasting solution will be a long one and we will also see temporary setbacks. Both countries will continue to fight for a stronger role in global trade. All of this is likely to lead to slow but steady growth in the global economy, which will also reduce the need for safe haven assets. Therefore, we have reduced our gold position and have partially hedged our USD-denominated investments against a depreciation of the U.S. dollar against the euro. We continue to favor corporate credit, as bonds should further benefit from central bank support.