Investing in December 2022: Our views in brief.
Credit Suisse gives its perspective on economic and financial market developments over the short to medium term and looks at the implications for investors. Investor sentiment is temporarily improving as calm has returned to the gas and electricity markets. It remains uncertain whether the price collapse has been overcome. The fact is that economic growth continues to slow down globally, including in Switzerland. However, experts say that there is currently no threat of a recession in this country.
The bear market has not yet been overcome
Inflation in the US – as in Switzerland – has reached its peak. In the hope that an end to monetary tightening is now in sight, the markets have recently experienced an uptick. However, inflation is likely to continue at a high level, and further interest rate increases are therefore expected to follow. This means economic risks will remain, which is likely to weigh on profit margins. The outlook for global equities also remains negative. Fixed-income investments, by contrast, are becoming increasingly attractive. Government and high-grade corporate bonds can be particularly valuable for long-term investors and portfolio diversification.
Economy: Swiss companies are prepared for energy bottlenecks
Growth in global gross domestic product (GDP) is expected to slow down to 1.6% in 2023, after reaching 2.7% in 2022. The UK has been in a recession since the middle of the year, and the euro zone is currently sliding into one. Given the massive interest rate hikes by the US Federal Reserve, it is also likely that economic momentum will slow in the US. Meanwhile, the Chinese economy is growing at an unusually low rate of 3.3% due to the restrictive COVID measures and problems on the real estate market.
An acute energy shortage with interruptions should be highly unlikely this winter. Gas supplies in Europe will probably be sufficient. Swiss companies would be prepared for the worst-case scenario, as the Credit Suisse survey carried out as part of the PMI panel shows. According to said survey, more than half of the companies surveyed have already taken measures to prevent electricity and gas bottlenecks and thus mitigate their effects. In addition, nearly 25% have a "plan B."
Interest rates and bonds: Key interest rate cuts in 2023 are unlikely
Various central banks have recently increased interest rates less sharply than economists had expected. The Credit Suisse Index, which measures the surprises, has fallen into negative territory. However, heavyweights – such as the Federal Reserve and the European Central Bank (ECB) – have stuck to their indicated course. Although the pace of key interest rate hikes is expected to slow in the coming months, global monetary policy is likely to act as a brake for some time to come. Interest rate cuts are unlikely in 2023.
Currencies: The Swiss franc as a "safe harbor"
The Swiss franc has appreciated against the euro over the course of the year, but has recently weakened somewhat. It can be assumed that the exchange rate will move towards 0.95. First, the euro zone is likely to already be in a recession due to the energy crisis. Second, due to high inflation, the ECB must slow down the economy by raising interest rates. Third, the Swiss franc, as a "safe harbor" currency, is enjoying strong demand, and lower inflation better supports purchasing power.
Equities: The reporting season for Q3 was better than expected
The corporate results at the end of the third quarter were generally better than expected. According to estimates, for the past quarter the MSCI World Index recorded sales and earnings growth per share of 14.5% and 9.4%, respectively. The focus globally was on results in the technology sector, as falling sales and cost reductions indicated that even the largest companies in this area are not immune to the slowing effects of interest rate increases.
Commodities: A turbulent winter is coming
The situation on the gas and electricity markets has eased temporarily as storage facilities are sufficiently full. However, the risk of further setbacks remains – especially in the event that winter temperatures are below average. The oil market is also heading into an uncertain phase, as Europe is introducing an embargo on Russian oil at the beginning of December. Gold has recently recovered thanks to a decline in the US dollar. Nevertheless, there are signs of skepticism. Industrial metals are holding up well despite weak industrial production.
Real estate: Scarcity is supporting the prices of residential property
In the third quarter, the prices of condominiums were 6.6% higher than in the previous year. The prices of single family dwellings rose by 7.2% in the same period. This means only a slight weakening despite strong interest rate increases. Meanwhile, price growth is likely to continue to slow in the coming quarters. However, because major scarcity is supporting prices, no price decreases are expected for the time being. In the medium term, however, a fall in prices cannot be ruled out if interest rates continue to rise or there is a prolonged recession.