Investing in December: Emerging market equities increasingly important

Investing in December: 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. Economic recovery is being impeded in Europe and the US by the latest COVID-19 wave. This is not the case in China and other North Asian countries that have the virus better under control. At the moment, emerging markets are likely to be of particular interest to investors.

Equity allocation rises in the emerging markets

The outcome of the US presidential election and the news of progress in vaccine development have reduced the volatility in the markets and should continue to boost the equity markets. However, the second wave of the virus in Europe and the US is a major short-term risk. Therefore, Credit Suisse is keeping its equity allocation at the strategic level for those markets, while it is raising the level for emerging market equities where economic recovery and valuation are more promising. Investment-grade and emerging market bonds in hard currencies and commodities are also attractive.  

The economy: Swiss gross domestic product to shrink in the fourth quarter

The global economy is likely to suffer less during the second COVID-19 wave than it did under the first one. One reason for this is that the pandemic is under control in North Asia, namely in China. Furthermore, the restrictions in Europe, although less extensive overall, are starting to show results in Europe; medical care has improved for COVID-19 patients and society is familiar with the most important protective measures. Last but not least, the government stimulus packages are effective.

Switzerland is also in the throes of the second wave, but the economic impact should be much less devastating than in the spring of 2020. The Swiss gross domestic product (GDP) will shrink in Q4 nonetheless. Due to the massive increase in case numbers, recovery came to a standstill especially in the consumer-oriented service industry at the end of October, but has not stopped in the manufacturing sector. For 2021, the outlook for the economy as a whole is still positive.

Financial markets: Second wave weakening the service sector

Swiss service providers feeling the second wave of the coronavirus 

Purchasing Managers' Indices (PMI) > 50 = Growth
Last data point: October 2020
Sources:, Credit Suisse

Interest rates: Prime rates remain unchanged for now

While the short-term economic outlook is highly uncertain due to the unpredictable course of the pandemic, analysts are mostly in agreement when it comes to central bank forecasts. Nearly 90% of the analysts who are surveyed monthly by the CFA Society Switzerland assume that prime rates will not change in the next six months for Switzerland, the US, or the euro zone. This is because instead of adjusting interest rates, central banks are boosting the economy by purchasing bonds.

Financial markets: No prime rate changes expected

Financial analysts expect no prime rate changes

Percentage of respondents who expect no change in short-term interest rates
Last data point: November 2020
Sources: CFA Society Switzerland, Credit Suisse

Currencies: Euro and Swiss francs are in a close trading range

During the first wave of the pandemic, the Swiss franc was under upward pressure versus the euro. However, the Swiss National Bank at least limited this appreciation by way of currency purchases. Since then, the Swiss franc has tended to lose momentum. Good news on the coronavirus vaccine front has also recently stifled demand for "safe haven" currencies such as the Swiss franc. However, the volatility of the EUR/CHF rate has been low, and this currency pair will probably remain within a narrow trading range.

Financial markets: Swiss franc loses strength

Swiss franc loses value following good news on the vaccine front 

Last data point: November 16, 2020
Sources: Bloomberg, Credit Suisse

Equities: Emerging markets are attractive

Equity investments in emerging markets, particularly in Asia with the heavyweight of China, are considered attractive for the short and long term. The region has the coronavirus under much better control than the West, and growth continues to improve. The potential for de-escalation of the US-China relationship under a new US foreign policy with President-elect Biden would also benefit these markets. Even non-Asian emerging markets might catch up and benefit from a weaker US dollar. Swiss investors are underinvested in these markets.

Investing: Equities in emerging markets are very promising

Emerging market equities benefit from a weaker US dollar

Last data point: November 15, 2020
Sources: Refinitiv, Credit Suisse

Commodities: Volatile, but on the rise

Commodities indices are performing well, despite the temporary slowdown in industrial production. The slump in growth in the fourth quarter will drive down oil demand in the short-term, but the Organization of Petroleum Exporting Countries (OPEC) should compensate for this by delaying production. At the same time, the prospect of recovery in the global economy is paving the way for a significant recovery in demand in the second half of 2021. This should boost prices. The price of gold has been shaky as of late, but the low interest rates should continue to provide support.

Investing: Positive trend in commodities

Gold lower as of late, petroleum catches up 

Last data point: November 13, 2020
Sources: Bloomberg, Credit Suisse

Real estate: Pandemic extends the period of low mortgage rates

The Swiss National Bank will continue to fight an appreciation of the Swiss franc. Thus, no rate hike can be expected until at least the end of 2021. The interest rates for SARON mortgages, which are replacing the former LIBOR mortgage, are likely to remain at their low point for the next 12 months. For Fix mortgage interest rates, we would expect a slight increase of 10 to 35 bp while volatility remains a factor over the next 12 months.

Financial markets: Interest at record lows for money market mortgages

Interest rates likely to remain at low levels for money market mortgages

Last data point: November 16, 2020
Source: Credit Suisse
* Interest rate for SARON mortgage starting September 21, 2020, Previous historical interest rates: Flex rollover mortgage (3-month LIBOR)

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