Global Economy: Investment Boom Is Reshaping the Economic Cycle
Despite geopolitical tensions, higher interest rates, and persistent uncertainty, the global economy continues to demonstrate resilience. Leading indicators such as purchasing managers’ indices, alongside stable consumer spending and labor market data, suggest that the global economy is likely to continue expanding in the short term. Above all, we are observing a structural shift in the drivers of growth. Expansionary fiscal programs and elevated corporate investment are supporting economic momentum across many regions of the world.
- Investments are replacing consumption as the main growth driver
- Energy prices are creating second-round effects in production and consumption
- IPOs of major technology companies are becoming a test for capital markets
As a result, the global economy is increasingly being driven by investment rather than the traditional consumer cycle. High levels of spending on artificial intelligence, infrastructure, energy supply, and defense are fueling a sustained global investment boom. Investment in artificial intelligence remains largely unabated and is already contributing to higher productivity and rising corporate profits. Industrial, infrastructure, and technology companies with strong productivity, pricing power, and real cash flows are among the primary beneficiaries.
Financial Markets: Equities Remain Resilient as the Interest Rate Regime Shifts
Equity markets have remained remarkably resilient despite numerous risks. Solid corporate earnings, expansionary fiscal policy, and strong investment activity continue to support markets. Investors currently appear increasingly willing to look through geopolitical risks. Stock markets continue to climb the proverbial “wall of worry.” As long as earnings, liquidity, and investment remain stable, setbacks in equity markets are likely to remain limited.
At the same time, the recent rise in long-term interest rates marks an important regime shift: the era of ultra-low interest rates, low inflation, and virtually unlimited liquidity may be coming to an end. Investors are once again demanding higher real yields and risk premiums for long-term government bonds. While core inflation has remained relatively stable so far, rising energy prices are increasing pressure on consumer and producer prices. In this environment, long-duration EUR and USD bonds appear particularly unattractive.
Instead, capital-intensive business models with real cash flows and high levels of investment activity are increasingly benefiting, while companies whose valuations are primarily based on long-term growth expectations are losing relative appeal. At the same time, the anticipated IPOs of prominent AI and technology companies such as SpaceX, OpenAI, and Anthropic are likely to become an important test of how receptive capital markets remain to highly valued future-oriented companies.
Investment Strategy: Quality, Value, and Real Assets Remain Key
From our perspective, quality, value, and inflation protection remain essential in portfolio allocation. We expect the currently high weighting of the United States in global equity indices to decline over the medium term and therefore strategically favor Switzerland, Europe, and emerging markets. Within equity markets, quality and value stocks appear more attractive than highly valued growth stocks. We see opportunities particularly in industrials, energy, and commodity sectors that are likely to benefit from infrastructure investment, geopolitical fragmentation, and rising defense spending. At the same time, diversification and real assets are becoming increasingly important. Gold, commodities, and liquid alternative investments offer attractive diversification opportunities in an environment characterized by higher inflation, rising government debt, and increasing geopolitical fragmentation.
Following the strong market recovery and the significant rise in optimism across financial markets, we nevertheless recommend disciplined rebalancing of equity allocations. The geopolitical situation around the Strait of Hormuz remains fragile, while the summer months have historically tended to be associated with weaker seasonal market performance.
Overall, the coming years are likely to be driven less by liquidity and valuation expansion and more by real growth, investment, and cash flows. Broad diversification across asset classes and risk factors therefore remains essential.
