Investing in December: Our forecast in brief
The Credit Suisse perspective on economic and financial market developments over the short to medium term and their implications for investors. Despite supply chain bottlenecks, Swiss companies recorded higher corporate profits than expected in the third quarter of the year. Find out more about the current situation in the financial markets and key insights for investors.
Moderate overweighting of equities maintained
The decision made in October to increase the weight of equities was perfectly timed: In the time since, global equity markets have reached new highs. Credit Suisse will maintain this overweighting in the short term on account of the positive developments in the most recent reporting period and the ongoing favorable macroeconomic outlook, both of which are set to further bolster equities.
However, tactical indicators once more show signs of overheating, and the list of risks – for example, concerns about inflation or the situation in China – remains long. Credit Suisse therefore recommends that investors who have benefited from the October rally take a portion of their profits.
Economic conditions: Swiss companies struggle with purchasing problems
Industrial production is currently ramping up again following global supply chain bottlenecks. This trend is likely to continue in the coming quarters. Social distancing measures are also likely to be further eased in many areas, meaning that a solid consumption of services should lead to strong global economic growth in 2022 as a whole.
Instabilities in supply chains are also affecting Swiss industrial companies. In the wood, furniture, paper, and electronics sectors, insufficient stocks of intermediate goods naturally leads to insufficient stocks of finished goods. As such, the lack of intermediate products is slowing down production.
Supply chain bottlenecks are putting a damper on the furniture and electronics sectors
Distribution of companies that consider their stocks to be too high, and those that consider their stocks to be too low (in %); Average in third quarter of 2021
Source: ETH Zurich Business Tendency Surveys, KOF Swiss Institute for Business Cycle Research; Credit Suisse
Last data point: Q3 2021
Interest rates and bonds: The US Federal Reserve (Fed) will raise the key interest rate in 2022
Inflation has recently reached its highest level in 30 years in the US. This can largely be attributed to temporary effects experienced after reopening the economy. However, given the healthy labor market situation and rising rents, inflation is likely to remain higher than pre-crisis levels.
The Fed is set to raise its key interest rates accordingly as early as next year, with further interest rate hikes expected to follow in 2023. Key interest rate hikes are not currently a concern in Europe and Switzerland.
Discrepancies in key interest rates in the US and Europe
Source: Datastream, Credit Suisse
Last data point: Nov. 15, 2021, followed by Credit Suisse forecast
Currencies: The euro is expected to have an upside potential against the Swiss franc
Due to the rising global interest rate environment, the Swiss franc could lose strength as a low-interest currency. Although the euro is not a high-interest currency either, the rate of inflation in the euro zone is higher than in Switzerland. This arouses expectations that the European Central Bank will raise the key interest rates earlier.
What's more, demand for safe harbors such as the Swiss franc will likely decrease again in the wake of the global economic recovery, which means a slight devaluation against the euro can be expected.
The strength of the Swiss franc is likely to be temporary
Source: Bloomberg, Credit Suisse
Last data point: Nov. 15, 2021
Equities: Profits exceed forecasts in third quarter
Growth in corporate profit was surprisingly high once again in the third quarter of 2021, although the development was less pronounced than in the first two quarters of 2021.
The companies represented in MSCI World reporting achieved an earnings per share growth of more than 40% year-on-year. Profits thus exceeded estimates by 10% – around 70% of companies delivered better results than were forecasted. The reporting period was also encouraging in Switzerland. Swiss companies exceeded their profit expectations by 15%.
Swiss equities exceed profit expectations in third quarter
Source: Refinitiv Datastream, Credit Suisse
Last data point: Nov. 15, 2021
Commodities: Fluctuations are still to be expected
After significant increases in October, gas and energy prices settled. However, the risks of a winter shortage have not yet been navigated and volatility is likely to remain high.
Meanwhile, inflation has undergone surprising further increases, which have given precious metals a further boost. While the environment should remain supportive in the short term, medium-term downside risks must continue to be kept in mind: Recent inflation trends are likely to push the Fed toward an earlier and more aggressive tightening of interest rates.
Commodity markets remain volatile
Source: Bloomberg, Credit Suisse
Last data point: Nov. 12, 2021
Real estate: Price hikes for residential property continue
The high demand for residential property, coupled with a shortage in supply, is further driving up prices. In the third quarter of 2021, prices for single-family dwellings rose by 7.5%, while condominiums appreciated by 7.3% compared to the same quarter of the previous year.
Price growth is being felt most strongly in the outskirts of agglomerations, as well as in rural and tourist regions. Thanks to the rise in home working, many prospective buyers have expanded their search radius, thus increasing the chances of finding an affordable property.
The Alpine region is experiencing the highest price growth
Annual growth rates in residential property prices (transaction prices for first homes)
Source: Wüest Partner, Credit Suisse
Last data point: Q3 2021
