Investing in September: 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. US equities remain desirable for investors. However, industrial activity in Switzerland remains weak.
Bonds losing their appeal
Global bond yields have taken a nosedive in recent weeks, and, as a result, we are changing our previously positive view on emerging market debt in hard currencies to neutral and slightly reducing the weighting of corporate bonds in the investment grade area.
However, our weighting of global equities continues to be aligned with the strategic allocation with an unchanged preference for IT and US equities, where currency risks should be limited thanks to the ongoing strength of the US dollar. We are keeping to the strategic weighting in the remaining asset classes as well.
Economic conditions: Swiss industry in reverse
The trade dispute between the US and China is putting pressure on the growth of global industry, which is prompting fears of a recession. However, neither the US nor the global economy is on the verge of a recession. So far, there have been hardly any signs of the weak industrial activity infecting the labor markets. The most important driver of economic growth – consumer spending – has therefore remained unaffected.
Recently, the Swiss Purchasing Managers Index (PMI) for industry has fallen slightly below the levels it reached during the 2012 euro-zone recession or the period after the Swiss National Bank (SNB) discontinued the minimum exchange rate in 2015. Therefore, industrial activity is unlikely to pick up momentum in the near future. At least this weak demand has not spilled over to the labor market: Companies are still hiring.
So far no job losses in Swiss industry
Source: procure.ch, Credit Suisse
Last data point: July 2018
Interest rates: Swiss National Bank is intervening on the foreign exchange market
In July, the US Federal Reserve cut its key interest rate by 0.25%. The European Central Bank (ECB) is likely to follow in September with a rate cut and other measures. In light of the appreciation pressure on the Swiss franc, the Swiss National Bank (SNB) is intervening on the foreign exchange market.
For the time being, foreign exchange purchases are lower than in previous phases. If the appreciation pressure continues to increase, foreign exchange purchases may not be sufficient – making a rate cut by the SNB more likely.
Significant SNB interventions since mid-July
Weekly change in demand deposits at the SNB
Source: SNB, Credit Suisse
Last data point: August 16, 2019
Currencies: Swiss franc benefits from its capacity as a safe investment
Since the escalation of the trade dispute between the US and China in early August, the Swiss franc has profited from its capacity as a "safe harbor." As expected, the SNB has countered the appreciation pressure on the Swiss franc with foreign exchange market interventions.
As we are not expecting an interest rate cut by the SNB for the time being, while the ECB will soon be taking the first steps in that direction, we expect further appreciation of the Swiss franc against the euro. Global tensions would amplify this trend.
Swiss franc stronger in volatile environment
Source: Bloomberg, Credit Suisse
Last data point: August 19, 2019
Equities: Limited upside potential for Swiss securities
The Swiss equity market has risen sharply year to date and held up well in the first weeks of August. Since early 2014, Swiss equities – currency-adjusted – have developed almost in line with their global counterparts, which were supported in particular by IT equities.
However, following the very strong price development and higher valuations, we are now slightly more cautious when it comes to the Swiss equity market. We continue to favor US equities and the IT sector.
An impressive performance so far for Swiss equities in 2019
Source: Datastream, Credit Suisse
Last data point: August 16, 2019
Commodities: Gold captivates investors
Cyclical commodities such as industrial metals and energy remained under pressure, whereas more defensive markets, especially gold, reached new heights. The trade dispute and continued falling interest rates facilitated this development.
Gold certainly has diversification benefits right now, although these are lower for Swiss investors given the strong domestic currency. In addition, we point out the more unrealistic speculative positioning that has accumulated in the meantime, which makes the precious metal vulnerable to at least short-term setbacks.
Turbulent financial markets pushed up price of gold in 2019
Source: Datastream, Credit Suisse
Last data point: August 19, 2019
Real estate: Swiss real estate equities remain attractive
Thanks to record-low long-term interest rates and relatively stable dividends, Swiss real estate investments continue to be attractive. Shares in real estate companies and real estate funds are enjoying brisk demand. This is reflected in the prices for equities and fund units, which are considerably higher than the net asset values of their real estate holdings.
While the interest-based support for real estate equities is likely to continue for now, capital increases and profit-taking could slow performance in the remainder of the year.
Valuations of Swiss real estate funds and equities are rising
Premiums for listed real estate funds and equities
Source: Datastream, Credit Suisse
Last data point: July 31, 2019
