Switzerland – valuations are increasingly attractive.
There hasn’t been much change for Swiss stock market indexes in recent quarters. They may have put in a positive performance so far this year, but they’re still unable to keep up with indexes in other regions. Eurozone stocks, in particular, are proving popular among investors and again performed well in Q1. Unlike those stocks, the Swiss market doesn’t offer investors any exposure to the AI investment theme, and its defensive bias only really brings in investors when there’s a risk of recession.
There’s currently no prospect of an economic downturn: Swiss GDP, just like US GDP, is expected to rise by 2% in 2024. What's more, price stability has well and truly been achieved in Switzerland, with inflation falling quickly and now nearing 1%.
As inflation has returned to normal, the SNB was able to cut its policy rate at its March meeting, a move that took investors by surprise. This policy change will help to keep domestic companies competitive by stopping the Swiss franc from gaining more ground against the US dollar and the euro – at least in the short term.
The appeal of Swiss equities is hard to ignore. For once, they’re extremely attractively valued relative to global stocks, as their usual premium has been completely wiped out. They therefore offer considerable upside potential, and if there is a market consolidation, the risk that Swiss equities will fall even further is relatively low.
As always, it’s important to be well positioned on the Swiss market in order to outperform the highly concentrated SMI and SPI indexes. With the ECB and the Fed getting ready to cut rates as well, everything suggests that we’re on the cusp of a period of economic growth and stock market expansion. In this kind of environment, it’s better to invest in cyclical, export-oriented stocks, as they’re the ones that will really reap the benefits of the looser monetary policy and a cheaper Swiss franc. Unsurprisingly, we think small and mid caps offer the most opportunities. In this segment as well, valuations are no longer excessively high, and there’s major upside potential.
We therefore remain overweight on Swiss equities and recommend generous exposure to small and mid caps, which will drive outperformance as economic growth picks up.
Geopolitical tensions are here to stay
The war in Ukraine has entered its third year, and geopolitical tensions look set to remain high in the Middle East. Following the strike on its embassy in Syria, Iran launched an aerial attack on Israel over the weekend. However, this retaliatory move had been expected and caused very little damage. In the short term, we don’t expect any further escalation between the two military powers, although the situation in the region is likely to remain tense for some time. Energy prices are a good indication of how these developments have affected the financial markets. We still expect there to be a global economic recovery as long as oil prices remain in check – spare capacity in key oil-producing countries, like Saudi Arabia, should prevent prices from soaring. Despite the geopolitical uncertainty, the stock markets should continue on their uptrend, especially if central banks begin loosening their monetary policies, as expected.
This week’s figure : 2,420
Gold has reached a new record high of USD 2,420 per ounce, pushed up by geopolitical tensions. It has gained ground despite rising bond yields, suggesting the uptrend is intrinsic.
Author
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Daniel Varela holds a degree in business administration with a specialisation in finance from the University of Geneva and began his career in 1989 as a fixed income manager. He joined Banque Piguet & Cie in 1999 as head of institutional asset management and with responsibility for bond analysis and management. In 2011, he became head of the investment strategy and Piguet Galland's investment department. In 2012, he joined Piguet Galland's Executive Committee as CIO.
