Investing in October: 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. Financial equities and US securities are currently attractive investments. The bond situation remains difficult for investors.
Favor financial equities and US securities
Due to the current economic and interest rate situations, we recommend increasing the equity holdings in your portfolio above their strategic weight. In particular, our preference is for the purchase of US securities and financial equities. The latter are attractively valued, and banks should benefit from steeper yield curves.
The situation in the fixed income market remains extremely challenging for Swiss investors given the mostly negative returns. We therefore continue to recommend that investors be slightly underweight in bonds. For alternative investments, we would leave weights close to their strategic allocation.
Economic conditions: Consumption supports Swiss growth
Global industrial production is shrinking. The trade dispute between the US and China weighs not only on the bilateral trade between the two opposing parties. China's Asian suppliers or in Europe, particularly Germany, are also affected. Private consumption, on the other hand, looks to be in a comparatively good position: Thanks to factors such as low unemployment, private households across the world continue to be in a consuming mood.
The industrial activity in the countries to which Switzerland exports its goods is weaker than at any time in the last seven years. The situation is particularly dire for the mechanical and electrical engineering and metal industries (MEM industries). However, two-thirds of Switzerland's export volume now consists of consumer goods. Exports of these goods continue to benefit from the solid global consumption growth. Overall, growth in exports is therefore likely to slow, but there is no reason to fear an actual collapse in export volume.
Interest rates: No key interest rate cut by the SNB
The US Federal Reserve (Fed) has once again lowered the federal funds rate, and the European Central Bank (ECB) eased its monetary policy as well. The Swiss National Bank (SNB) is still waiting to cut interest rates, as the reduced "interest rate disadvantage" did not significantly strengthen the Swiss franc against the euro. However, the SNB is likely to continue to intervene in the foreign exchange market if the upward pressure on the Swiss franc grows too strong.
Currencies: Economic conditions and interest rate advantage support the US dollar
The U.S. Dollar Index (DXY) has risen significantly since the beginning of the year. Although it's true that the US is now also feeling the effects of the weakening global production as a result of its trade dispute with China, the US economy continues to make a good impression when compared to its counterparts in the euro zone and emerging markets.
In addition, the US is likely to enjoy an interest rate advantage for a long time to come, which additionally supports the US dollar. Should the geopolitical situation worsen, the US dollar would also benefit from its capacity as a "safe harbor."
Equities: Increase global equity weight
Global political uncertainties have waned slightly recently. First and foremost are the positive developments in the US-China trade dispute. In addition, the defensive positioning of investors and the low interest rate environment have increased the relative attractiveness of equities. Although we are not overly excited, we do anticipate a rise in share prices, if only a restrained one. Consequently, we slightly increased our tactical versus strategic equity allocation.
Commodities: Increased volatility in the oil market
Weak demand was a concern in the oil market until very recently. But then there was a serious attack on production in Saudi Arabia that temporarily caused prices to soar. Overall, we anticipate a gradual normalization of supply, which will cause prices to fall somewhat. However, it is likely that the market will price in a higher risk premium in the medium term due to ongoing tensions in the Gulf region.
Real estate: Over 75,000 vacant residential units in Switzerland for the first time
The number of vacant homes in Switzerland has risen this year for the tenth time in a row. On June 1, 2019, more than 75,000 residential units were vacant. That amounts to 1.66% of the housing stock. However, with just over 3,000 additional empty residential units than the previous year, this year's increase was substantially lower than the increases of the last five years.
Rental apartments outside of city centers continue to be predominantly affected by vacancies. A trend reversal is not in sight. Residential property, meanwhile, saw a slight decline in its vacancy rate.