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Investing in April: Our forecast in brief

Credit Suisse's perspective on economic and financial market developments over the short to medium term and their implications for investors. The battle against the coronavirus will likely continue to hit the world's economy over the coming months. A brief recession is expected for Switzerland. 

Caution is advised when buying equities

Due to the substantial fall in prices, many investors have seen equity holdings fall below their long-term target level. The question now is whether this is a good time for investors to be buying equities again. Although we would advise against aggressive equity purchasing, investors who have major cash holdings and can cope with the likelihood of persistently high levels of volatility might want to consider gradually topping up their equity positions. Given that the potential for further dislocation in the markets cannot be excluded, they should nevertheless proceed with care.

Economy: Brief recession seems inevitable for Switzerland

The global economy will lose much of its momentum over the coming months. That said, China now seems to have bottomed out following an extremely sharp slowdown in growth. A gradual recovery can be expected for other Asian countries, too. The euro zone and the US, meanwhile, are still in the initial stages of the downturn.

Switzerland's economic growth in 2020 will be significantly lower than had been expected until only recently. We now expect gross domestic product (GDP) to fall by 0.5% this year in overall terms. The Swiss economy is directly affected by the measures taken to stop the spread of the virus; at the same time, demand is falling as a result of the uncertainty as well as the slowdown in global growth. Provided the lockdown doesn't last too long, and measures such as short-time working take effect, the economic damage is nevertheless likely to be contained.

Corona crisis leads to mild recession

Swiss GDP, real; index: Q1 1981 = 100 (from Q1 2020: Credit Suisse forecast)

Source: State Secretariat for Economic Affairs (SECO), Credit Suisse

Bonds: Central banks doing more than just cutting interest rates

Central banks have responded to the deteriorating economic situation and the stresses within the financial system through a series of targeted measures. In the euro zone and Switzerland, the scope for rate cuts was limited given that interest rates were already negative. The Fed meanwhile slashed its benchmark interest rate again, with the result that here too rates are now close to zero. Consequently, we do not expect the Swiss National Bank to tighten rates in the future either.

US benchmark rate is close to zero

Last data point: 18.03.2020
Source: Datastream, Credit Suisse 

Currencies: Bumpy ride for US dollar

Following a period of minimal volatility, major swings have occurred on the foreign exchange market over the past month. It all began with the US dollar losing significant ground due to the Fed's substantial cut in interest rates. Growing market turbulence then caused demand for US dollar liquidity to shoot up across the globe, leading to a significant strengthening of the currency. Highly cyclical currencies in particular lost ground at the same time. The US dollar's appreciation – including against the Swiss franc – is likely to be halted in the weeks ahead due to the Fed's liquidity injections, in tandem with calmer financial markets.

Rollercoaster ride for US dollar

Last data point: 17.03.2020
Source: Credit Suisse 

Equities: Slump in earnings set to be temporary

The market's vulnerability was seriously compounded not only by the fact that the coronavirus pandemic was clearly underestimated by most market participants but also by the high level of equity valuations at the start of the year. However, most of the equity market overvaluation has been eliminated and equities now look distinctly attractive versus bonds in particular. Although interest rates have ticked up recently, they have lost much of their luster compared with equity dividends. An equity market recovery therefore looks increasingly likely.

Relative attractiveness of equities versus bonds is growing

Last data point: 13.03.2020
Source: Bloomberg, Credit Suisse 

Commodities: Worries about oversupply becoming more acute

The disruption to industrial activity spells trouble for cyclical commodities. This is exacerbated by the unexpected severing of cooperation between Russia and OPEC, as well as the battle for a slice of the oil market. Prices are therefore being hit by a demand shock as well as by a supply shock. They have now fallen so far that supply will need to be adjusted. The risks nevertheless remain considerable in the short term. Gold has come under pressure due to liquidity bottlenecks, but should recover as soon as central banks manage to eliminate these shortages.

Oil prices have slumped

Last data point: 16.03.2020

Source: Datastream, Credit Suisse

Real estate: Coronavirus bringing uncertainty to real estate market

The Swiss real estate market faces a number of potential setbacks due to the corona crisis. The retail and hotel segments are particularly badly affected. In addition, the recovery in the office market is likely to grind to a halt. The housing market looks very stable, on the other hand, thanks to low mortgage rates, robust financing requirements, and low output; consequently, we do not expect prices to fall. As for investment properties, the low level of interest rates is supportive to property values despite a renewed pick-up in vacancies.

Real estate prices will remain stable thanks to short supply

Planning applications and building permits for condominiums and single family homes (SFHs), sliding 12-month sum
Last data point: Feb. 2020
Source: Baublatt, Credit Suisse 

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