Investing in October: Our forecast in brief
Credit Suisse gives its perspective on economic and financial market developments over the short to medium term and looks at the implications for investors. We will have to deal with the COVID-19 pandemic for some time to come. Nevertheless, the economic recovery has begun. Equities are continuing to soar, boosted by solid profit growth and favorable financing conditions. Japanese equities in particular are appealing to investors right now.
As the recovery continues, hold on to your equities
The economic data over the past few weeks has been more and more disappointing. Some indicators even seem to be pointing to an end to the recovery. Those worries appear to be premature. Global industrial production will likely recover soon, and financing conditions remain favorable, which will spur economic growth further. For those reasons, Credit Suisse is standing by its neutral equity allocation and cyclical portfolio positioning. Besides underweighting government bonds, experts are still putting their faith in markets that are benefiting from the recovery. They have therefore most recently added Japan to their list of preferred regions.
Economy: US economy is back above pre-pandemic levels
Compared to other countries, the Swiss economy has made it through the COVID‑19 crisis relatively unscathed. Only in the US, where the government stimulated economic growth via massive spending, and in Sweden, where measures aimed at fighting COVID-19 were generally less strict, was economic performance in the second quarter of 2021 compared to its pre-crisis level higher than in this country.
Thanks to the progress made with vaccinations thus far and the agility of companies, the recovery in large parts of the economy stands to continue for the time being, especially as the labor market situation improves. That, in turn, will have a positive effect on consumer sentiment. The unemployment rate should gradually fall, reaching 2.5% toward the end of next year. In addition, the use of short-time working is decreasing. However, scattered restrictions and supply shortages are putting a drag on the pace of recovery.
Interest rates: Central banks tapering the pace of bond purchases
With the economic recovery, central banks are slowly beginning to normalize their monetary policy. The Bank of Japan and Bank of England have already reduced their securities purchases, while the European Central Bank (ECB) will cut back on its bond buying starting in October. The US Federal Reserve (Fed) will likely begin reducing its purchases in December. However, the tapering of bond purchases is not a harbinger of imminent interest rate hikes. Interest rates will remain low for a long time, especially in Europe, and that includes Switzerland.
Currencies: Euro is trending upward again
Over the past few weeks, the euro has appreciated in value against the Swiss franc once more after temporarily losing ground until mid-August. For the coming months, another slight increase in the value of the euro is expected, leading to a euro-Swiss franc exchange rate of 1.10 within the span of a year. Demand for safe harbors such as the Swiss franc stands to decrease as a result of the economic recovery and the overall return to normal, and that trend should benefit the euro in turn.
Equities: Japanese stocks offering potential
Japanese stocks have most recently been suffering from worries about COVID-19 and political uncertainties. Accordingly, they have been among the laggards in terms of performance since the beginning of the year. In the meantime, the economic outlook has been getting brighter, and politics should no longer be standing in the way of recovery. When Prime Minister Yoshihide Suga announced he would not be running for the office of party leader, the market rallied. In addition, the Japanese stock market is attractively valued, offering interesting potential for diversification.
Commodities: Inconsistent market performance
The trends in various commodities are currently being affected by different factors. A worldwide shortage of reserves in gas markets is leading to increased nervousness and uncertainty with regard to the winter supply. Oil market prices are currently fluctuating due to the US hurricane season, but they should level off again later in the fall. Industrial metals are currently reacting to disruptions in production, and gold remains closely linked to the dynamics of US interest rates and the US dollar, so a certain level of caution is advisable.
Real estate: Vacancies down for the first time since 2009
After climbing for many years, driven by a high level of rental apartment construction, the vacancy rate as of June 1, 2021, has fallen for the first time in 12 years, going from 1.72% to 1.54%. The decline pertains to residential properties, with a vacancy rate of 0.48%, and rental apartments, with a vacancy rate of 2.49%. Moreover, the pandemic has caused structural shifts in demand, such as toward larger apartments, but has not reduced it.