Companies' and households' demand for credit has also already declined due to the stricter conditions. However, the valuations of equity markets have continue to rise; the equity risk premium is currently at the lowest level since the financial crisis of 2008. At present, eurozone equities are even on the verge of an all-time high following a 30% rally. The energy shortage in Europe that has been overcome for the time being as well as the end of the pandemic restrictions in China have helped drive the share price increases.
The strong momentum of the equity markets has subsided somewhat in recent days and market breadth continues to be very low. We therefore remain defensively positioned and are leaving our portfolios almost unchanged. This means we still prefer US government bonds over equities. Within equities, we favour Switzerland and emerging countries, while we have a clear underweight in the USA. The problems among US regional banks remain and the discussions surrounding the debt ceiling in the USA are expected to pick up pace in the coming weeks. In comparable phases of 2011 and 2014, equities lost considerable ground, while US bonds made gains. We are thus prepared for this kind of stress scenario.
We see opportunities with the yen, which would appreciate significantly in the event of an adjustment to yield curve control by the Bank of Japan.