Investing in March 2023: Our views in brief

Equities vulnerable to losses after a good start to the year

Thanks to falling energy prices, a drop in inflation, and robust economic data, the start of the year on the stock exchange was very good. But now, an excess of optimism and a shortage of caution are likely to be priced in. The risk of recession remains elevated, thus far there is no light at the end of the inflation tunnel, and corporate profits will suffer in the months ahead.

Credit Suisse therefore remains underweight in equities and overweight in fixed income. However, the outlook for cyclical commodities has been adjusted in response to China's re-opening. Oil and industrial metals are expected to benefit in particular and outperform other commodities.

Economy: Temporary rise in Swiss inflation

Global economic growth remains weak and growth is expected to fall short of the long-term trend for 2023. However, certain negative factors have recently been resolved to some extent. COVID-19 restrictions were lifted sooner than expected in China, which should boost economic growth there in the first half of the year. This is likely to have a positive impact on the rest of the world in the second half of the year. Meanwhile, the euro zone will probably be able to avoid a recession because the energy situation has improved somewhat.

In Switzerland, the adjustment in electricity prices announced in August drove inflation up to 3.3% in January. However, this increase is likely to be temporary and declining inflation is likely to resume in February. An average inflation rate of 1.7% is expected for 2023.

Interest rates and bonds: Central banks continue to raise interest rates

Despite the decline in recent months, inflation is still too high to give central banks some breathing space. Central banks are being forced to raise their key interest rates further in order to slow demand and reduce price inflation. Interest rate hikes in the US and Europe are expected to continue until June. In Switzerland, the Swiss National Bank (SNB) is likely to raise the key interest rate from the current 1.00% to 1.75%, thereby making SARON-backed mortgages more expensive.

Currencies: Euro strength versus Swiss franc is only temporary

At the start of the year, the euro benefited from the acceleration of growth in China as a key export market, the reduced risk of an energy shortage in Europe, and expectations of further interest rate hikes by the European Central Bank. As expected, however, the euro's subsequent pole position vs. the Swiss franc turned out to be merely temporary. Lower inflation, a better economic outlook in Switzerland, as well as global risk sentiment would also point to a Swiss franc appreciation in the months ahead.

Equities: Communication services now preferred

While healthcare equities have achieved a solid excess return of around 8% since January 2022, it is now expected that the sector will perform in accordance with the MSCI World. The sector exposure preferred by Credit Suisse is now communication services. This sector stands out for attractive valuation, strict cost control, and solid earnings growth potential. As the burden of higher interest rates eases, there is a tactical opportunity.

Commodities: Central banks continue to have a negative impact on gold prices

The price of gold recently dropped after robust economic data and continued inflation prompted investors to expect further restraints under monetary policy. After all, higher interest rates increase the appeal of alternatives to gold (which is interest-free). Meanwhile, energy prices are dropping thanks to the persistently mild winter temperatures, and the EU embargo on oil products has not yet caused any disruptions. Prices of industrial metals are also on the decline, but the re-opening of China is likely to have a supportive effect.

Real estate: Rents becoming significantly more expensive

The ongoing shortage of housing due to high demand and sluggish construction activity means upward pressure on rents (usually new rental agreements), which rose by 1.6% in the fourth quarter of 2022. Even tenants in existing lease relationships are likely to face rising costs at some point. This is due to the initial increase in the mortgage reference rate from 1.25% to 1.5%, expected for September 2023. Rent inflation is likely to persist for the time being.