Investing in June 2023: Our views in brief

Credit Suisse moves toward neutral equity weighting

The economy is surprisingly resilient despite numerous challenges. For instance, the recent reporting season went better than had been feared. There is far less risk of a recession or an inflation spiral, which is why Credit Suisse was underweight in equities in fall 2022. Even though there are still major risks for equities given the delayed impact of interest rate hikes and attractive investment alternatives, the outlook has balanced out some. Credit Suisse thus believes the timing is right to stop underweighting equities: Neutral positioning is appropriate for both upside and downside risks.

Economy: The impact of monetary policy and tourism in Switzerland

The fastest tightening of monetary policy in more than 40 years has left its mark, particularly in the US. For example, inflation is starting to slow in the residential sector – which makes up around one-third of the US consumer price index. At the same time, energy and goods are contributing even less to inflation. The first signs of slowdown are also apparent in the labor market: US employment figures were higher than forecast by the market for the 13th consecutive month in April, but initial unemployment claims have risen recently.

By contrast, the tourism sector is picking up: The number of overnight stays in Switzerland is likely to increase again in the summer months between May through August, after already reporting a significant gain of 19% in the winter between December and March. For the summer season, an increase of 6% is expected year over year. The driver of this growth is pent-up demand from non-European visitors, especially those from Asia. At the same time, weak global economic growth is slowing an increase of visitors from Europe and the US. Swiss tourists are still an important group in terms of demand, but we are past this peak.

Interest rates and bonds: Key interest rates keep climbing in Europe

Although inflation is slowing worldwide, prices in many places are still rising too quickly to allow central banks to cut key interest rates. In the US, the Federal Reserve's fed funds rate is now above 5% – it is not projected to rise further.

The end of interest rate hikes has not arrived yet in Europe. Credit Suisse anticipates further rate hikes in the UK and the euro zone. In Switzerland, the Swiss National Bank is also likely to raise the policy rate further, from its current 1.5% to 2.25%, by September.

Currencies: Swiss franc has potential to appreciate against the euro

Given the increasing risks to the growth of the global economy and concerns over the US debt ceiling, the Swiss franc benefited from being a safe harbor currency. The currency is likely to retain this safe harbor status despite the recent turbulence in the Swiss banking sector. Growing concerns over global growth should thus prop up the Swiss franc. Credit Suisse is sticking to the defined EUR/CHF target price of 0.96 in three months.

Equities: Solid corporate results

Corporate profits are more robust than expected. According to the latest estimates from FactSet, which are based on first-quarter company figures, MSCI World companies generated sales and earnings growth of 3.6% and 4.3% per share, respectively. This is well above the -2.0% and +2.0% that was expected at the start of the reporting season. These positive developments can be attributed in particular to robust consumer demand and progress in reducing costs in the technology sector.

Commodities: Investment in gold remains supported

The anticipated slowdown in industrial production in Q3 is likely to temporarily weaken potential returns on cyclical commodities. However, structural demand should remain higher than average thanks to decarbonization efforts. In the current phase, Credit Suisse believes precious metals are better supported at least relatively and expects that gold could potentially reach new highs after consolidation. However, this will not happen until central banks ease monetary policy and interest rates fall again as a result.

Real estate: Tension rising in the rental housing market

The term "housing crisis" overstates the current situation on the Swiss rental housing market, but house hunting has become more challenging. This is evident in the advertised housing supply, for instance: The rolling four-quarter average for supply dropped to 4.4% in Q1 2023 – its lowest level since 2016. Between 2016 and 2020, it typically took 40 to 50 days to find a tenant. Now, advertisements for apartments are taken down from the internet after an average of 25 days.