Investing in November: 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. The economic recovery currently carries risks, not least because of the second pandemic wave. However, there are still return opportunities. Equities in cyclical sectors are currently particularly attractive for Swiss investors.
German and Chinese equities offer attractive return opportunities
While coronavirus case numbers are rising in Europe and new restrictions loom, the polarization in the US surrounding the presidential election leads to a high degree of uncertainty. This could result in volatile market movements. Therefore, for the time being, we recommend leaving the equity allocation at the strategic level. In order to still benefit from the ongoing economic recovery, we recommend German and Chinese equities to Swiss investors, among other things and in addition to domestic securities. Investment-grade and emerging market debt in hard currency also still offer attractive returns.
Economy: Swiss exports are back to pre-crisis levels
The gross domestic product (GDP) should drop by more than 3.5 percent in 2020 as a result of the coronavirus crisis. In 2021, however, we expect an increase of approximately 4.0 percent, which would mean that the pre-crisis level would be reached once again by the end of 2021. However, this moderately optimistic scenario does carry risks: In Europe, a second wave of infection is jeopardizing the recovery in the service sector; in the US, employment and consumption will suffer if a fiscal package is not adopted soon.
In the summer, Swiss exports reflected the dynamic recovery in the most important export markets and, overall, rose back to their pre-crisis levels in August. While foreign trade in the chemical and pharmaceutical industries was strong, the recovery in vehicle manufacturing and the watch industry was sluggish. The expected slowdown of global growth in the coming months will likely further emphasize this second trend. This is one reason why our growth forecast for 2021 is cautious.
Interest rates: SNB is maintaining its current rate
In its monetary policy assessment at the end of September, the Swiss National Bank (SNB) decided to keep its current rate unchanged. The prime rate remains at -0.75 percent; and the SNB "remains ready to increasingly intervene on the foreign exchange market in light of the continued high valuation of the Swiss franc." However, we do not expect the SNB to massively increase interventions in the near future unless the Swiss franc quickly and unexpectedly appreciates against the euro.
Currencies: SNB restricting Swiss franc's appreciation risk
During the first COVID-19 pandemic wave in March of this year, the Swiss franc was under pressure to appreciate against the euro, as is often the case in times of crisis. However, the SNB was able to limit the appreciation through targeted foreign exchange purchases. After the end of the lockdown, the Swiss franc lost ground once again; in the medium term, we expect another slight strengthening of the euro / Swiss franc exchange rate. If, however, the second pandemic wave gets worse, renewed appreciation pressure on the Swiss franc can be expected. However, the SNB made it clear that it will continue to resist this pressure.
Equities: Volatility remains high
Equities continue to promise attractive returns in the medium and long term. This is because the economic recovery will likely continue and the central banks support the markets with their loose monetary policy. Ultimately, there is a lack of clear investment alternatives. In the short term, however, there are various risks in the foreground, including uncertainties surrounding the US elections and the resurgence of the pandemic. The reporting season for the third quarter contributes to this uncertainty. We therefore expect volatility on the equity markets to remain high for the time being.
Commodities: Consolidation phase continues
Commodity markets are currently undergoing a volatile consolidation phase. This phase could continue for a while, since industrial production has recently slowed down again. Given that the economic recovery should continue next year, our medium-term outlook remains nonetheless positive. Oil prices still receive support thanks to restricted production; a further normalization of inventory would also be positive. We also see the price of gold increasing, since a potential increase of inflation expectations will likely push real interest rates further into negative territory.
Real estate: Number of vacant rental apartments has increased
As of June 1, 2020, the vacancy rate (VR) has increased to 1.72 percent and thus reached its highest level since 1998. The structural oversupply in parts of the rental market has even expanded (VR: 2.75 percent). The economic effects of the COVID-19 pandemic and lasting low interest rates will likely prevent a speedy turnaround here. In contrast, the ownership market (VR: 0.58 percent) as well as the rental markets in the centers continue to be partially characterized by scarcity.