Berenberg Bank believes that the trend of reindustrialization, the rise of "hard power politics," and the global demand for more energy are collectively driving the continuation of the current supercycle in commodities.
The bank's strategists noted that if China and the US can reach a clear agreement next month, it could inject further momentum into the current strong rally in global stock markets. Simultaneously, Berenberg has proposed a rather uncommon asset allocation strategy—completely eliminating bonds.
In its latest research report, the strategy team, based in the UK but part of Germany's Berenberg Bank, suggested adopting a "barbell" approach to asset allocation, seeking a balance between high-risk and low-risk assets.
Specifically, the bank recommends allocating 45% of the portfolio to "gold-plus" assets, which include gold, silver, other precious metals, and Bitcoin. Another 20% is allocated to commodities, with the remaining 35% allocated to stocks.
Berenberg's chief strategist, Jonathan Stubbs, stated in an interview that the bank employs a strategic rather than tactical approach when running its asset allocation framework, meaning adjustments are made only in very rare circumstances.
He said that since 2020, Berenberg has advocated a "stocks-plus-gold" barbell allocation because they view gold as a "better and more appropriate hedge" compared to bonds.
Consequently, Berenberg's asset allocation has zero exposure to bonds. This reflects the bank's concerns about high sovereign debt levels, the risk of fiat currency devaluation, and a "higher-for-longer" interest rate inflationary environment. Stubbs also mentioned that over the past five years, his recommended allocation to gold has been "consistently higher than that of most asset allocation institutions."
Berenberg believes its investment strategy is primarily shaped by three macro pillars: First, geopolitical disturbances, including Sino-US hegemonic competition and deglobalization. Second, fiscal dominance, involving fiat currency devaluation, financial repression, and deep state intervention in the economy and markets. Third, "higher-for-longer" interest rates, manifesting as persistently elevated inflation, long-term rates, and commodity prices.
Berenberg pointed out that the combination of these factors has led to a global macro outlook characterized as "weak and flat." Particularly against the backdrop of the Iran conflict pressuring demand and disrupting supply chains, the global economy faces significant stagflation risks.
However, although the bank is not optimistic about future growth prospects, its baseline scenario is not a recession.
Based on this macro assessment, Berenberg favors a "global rebalancing trade" in its equity allocation, meaning it sees more value in international stock markets compared to the US market.
This view is further reinforced by the bank's expectation of a long-term weakening of the US dollar. Analysts noted that since late 2024, Berenberg's portfolios have shown a clear preference for international markets.
Nevertheless, considering the substantial market gains over the past month, the strategy team admitted that from a short-term perspective, it is not easy to continue buying stocks at current elevated levels.
Regarding sector allocation, Berenberg views utilities and telecommunications as defensive winners that "can benefit regardless of the market environment."
Concurrently, the bank has also consistently increased its exposure to commodities since 2026. Stubbs and O'Malley advised investors to "continue siding with hard power industries," which can benefit from fiscal support and hedge against the impact of AI on traditional sectors.
In terms of specific themes, Berenberg is most optimistic about the following areas: - Transition metals, such as nickel, cobalt, and copper; - Artificial intelligence (AI); - Digital payments.
The bank summarized its overall investment proposition as: hard power, hard assets, hard currency. In other words, Berenberg is attempting to align its portfolio with the geopolitical themes currently dominating the global landscape.
However, Berenberg also emphasized that in the current market environment, almost any strategy report must come with substantial risk warnings, as one of the biggest variables is what they term a "Trump-style paradigm shift."
The bank categorizes the primary current risks as the "Six P's": - Politics - Policy - Prices - Profit - People (Demographics/Labor) - Pandemic
Simultaneously, Berenberg warned that markets cannot ignore several "black swan" risks, such as a sovereign debt crisis, a food crisis, and instability or even collapse of the fiat currency system.
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