Following the turbulence surrounding the banking sector in the US and the quick takeover of the major Swiss bank Credit Suisse by UBS, the previously tense situation on stock markets seems to have calmed down somewhat yesterday. The focus is now on the eagerly awaited monetary policy decision of the Federal Reserve. ECB President Lagarde meanwhile stressed that the banking sector in the euro area is resilient and has a strong capital and liquidity position. Despite the recovery on stock markets, investor confidence remains battered and the mood on the floor remains fragile.
The "tranquilizer pill" of the leading central banks, which, under the leadership of the US Federal Reserve, have expanded their supply of liquidity to the international financial system, had an effect. As a result, the stock indices in New York at the beginning of the week made up most of their losses from Friday. The Dow Jones Industrial closed 1.2% higher at 32,244.58 points and the S&P 500 closed 0.89% firmer at 3,951.57 points. On the Nasdaq, the indices gained about 0.35%. The battered confidence in the banking sector should thus be somewhat strengthened in the short term, but the rapid emergency takeover of Credit Suisse by UBS showed how quickly a major bank can be pushed to the abyss. On the bond market, the yield on ten-year US government securities rose again to just under 3.5%.
Asia-Pacific markets rose on Tuesday, following positive guidance from Wall Street. Markets in Japan remained closed for a holiday. In South Korea, the Kospi rose 0.4% and in Hong Kong, the Hang Seng Index gained 0.9%. In mainland China, the Shanghai Composite rose 0.5% and the Shenzhen Component gained 1.4%.
Christine Lagarde, Europe's top monetary watchdog, expressed confidence that eurozone banks are resilient to the recent turmoil and have sufficient resilience as well as strong capital and liquidity positions. In any case, the ECB's monetary policy toolkit is fully equipped to provide liquidity support to the euro area financial system, Lagarde said. Regarding the dual challenge of fighting inflation and a potential banking crisis, the ECB president said there was no trade-off between price stability and financial stability. The European Union's banking regulator also reiterated the stability and resilience of banks in Europe.
Corporate news in focus: RWE and Kingfisher with annual figures and in the US Nike with Q3 earnings.
Economic data in focus: Switzerland trade balance for February (08:00 CET), KOF spring economic outlook (09:00), ZEW economic expectations for Germany and the euro zone and from the US existing home sales in February.
All about global economic and market trends at a glance
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Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.
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Reference regarding valuation rates
Unless otherwise stated or specified, the rates used in the analysis are normally the share prices provided by the news agencies Reuters and/or Bloomberg at the close of the stock exchange of the domestic market of the analyzed security or the relevant principal market of this security on the respective local stock exchange on the eve of the day of compilation.
Explanation of investment recommendations for stocks
We apply a “hybrid approach” (internal fundamental analysis combined with “theScreener”, an external, purely quantitative analysis tool). TheScreener is based on purely quantitative, i.e. computable variables such as (but not exclusively restricted to) profit adjustments of the past few weeks, stock valuation in relation to historical performance and comparison groups, the technical trend, performance in relation to the market etc. The assessment of the equity analysts, which is largely based on a qualitative analysis, does not need to match with the one of theScreener. For the overall judgement the assessment of the equity analysts overrides the one of theScreener. LGT Bank (Switzerland) Ltd. categorizes its analysis recommendations into five ratings: for a “Buy” recommendation we expect a relative outperformance compared with the sector. Only equities subjected to an internal fundamental analysis can be rated “Buy”. The recommendation “Attractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly positive” or “positive”. A moderate relative outperformance versus the index is expected. For equities that we rate as “Hold” we expect a performance largely in line with the one of the sector. This can comprise both equities for which a fundamental analysis has been carried out as well as equities that theScreener ranks as “neutral” versus the index. The recommendation “Unattractive” is used for equities exclusively ranked by theScreener without any internal fundamental analysis as “slightly negative”. A moderate relative underperformance versus the index is expected. By contrast, “Sell” recommendations are based on the expectation of a relative underperformance compared with the sector. This can comprise both equities for which we are recommending “Sell” for fundamental reasons as well as equities that theScreener ranks as “negative” versus the index. Therefore the ratings always reflect a relative consideration versus the sector and/or specified index. The risk assessment is based on the individual judgement of the analyst (e.g. we assume a “high” risk for illiquid shares, highly indebted companies or shares from developing countries).
Reference regarding share valuation basis: The analysis compiled by LGT Bank (Switzerland) Ltd. are essentially based on secondary research relating to fundamental and quantitative analysis. Generally accepted valuation methods (valuation multiples, return figures, sector comparisons, comparisons with past valuations etc.) are used for this. The forecasts for the quantitative analysis are prepared with the help of mathematical-statistical procedures (see statements above concerning the analysis tool “theScreener”). Economic indicators such as interest rates, currencies, commodity prices and assumptions relating to the economy are included in the overall assessment. The mood of the market also affects the company valuation. Moreover, many of the approaches are based on estimates and expectations that may change quickly and without warning, depending on developments specific to the industry. Therefore, the recommendations derived from the analysis can also change accordingly. The investment judgements generally refer to a period of 6 to 12 months. However, they are also subject to market conditions and represent a snapshot of the situation. They may be achieved more quickly or more slowly or be revised upwards or downwards.
Explanation of investment recommendations for bonds
We employ both qualitative and quantitative methods to derive our recommendations, which are to be seen as relative to sector/quality peers among comparable maturities. “Buy” and “Sell” recommendations demand a qualitative in-house analyst opinion, in which we incorporate both historical and projected financial results and credit metrics as well as past and anticipated company and sector-specific observations and trends. We recommend “Buy” for a security for which we expect a strong relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Sell” if we expect strong relative underperformance compared to sector/quality peers among comparable maturities. The ratings “Attractive”, “Hold” and “Unattractive” can be based purely on a quantitative approach, which includes the market price of credit risk, valuation of equities and associated instruments, corporate leverage, liability structure, size, and agency rating. We recommend “Attractive” for a security for which we expect a relative outperformance compared to sector/quality peers among comparable maturities. We recommend “Hold” if we expect an average performance compared to sector/quality peers among comparable maturities. We recommend “Unattractive” if we expect a relative underperformance compared to sector/quality peers among comparable maturities.
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Definition of rating categories of S&P and Moody’s which are relevant for us:
AAA/Aaa: Borrower with highest credit quality. Default risk also virtually negligible over the longer term
AA/Aa: Safe investment, default risk virtually negligible but more difficult to assess in the longer term
A: Safe investment as long as no unforeseen events impair the overall economy or sector
BBB/Baa: Average investment. However, problems must be expected if the overall economy deteriorates
BB/Ba: Speculative investment. Defaults must be expected if the economic situation deteriorates
B: Highly speculative investment. Defaults are likely if the economic situation deteriorates
For more information on our methodology for bonds, please contact your LGT relationship manager or your local LGT Group company.
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