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. The financial markets are recovering slowly but surely from the economic crisis. Swiss equities offer good opportunities at present.

Cyclical positioning with risk awareness

We feel that equities still offer attractive potential returns, but a number of risk factors, such as the uncertainty about the political and fiscal policy conditions in the US, its trade conflict with China, and a slowdown in the economic recovery in the fall, could lead to temporary setbacks. For this reason, we are leaving our equity allocation at the strategically neutral level for now, and recommend small and mid-cap Swiss companies and German equities. In this regard, the cyclical portfolio positioning is driven by overweighting in commodities, and investment grade bonds and emerging market debt in hard currencies.

Economy: Swiss industry is recovering from the collapse

Global industrial production is recovering at a historic rate after having plummeted by record levels due to the lockdown measures. Retail sales have already exceeded pre-COVID-19 levels in many areas. The next steps in the recovery are, however, expected to be sluggish. That is because companies remain hesitant about rehires and new hires, as well as investments, while a resurgence of the virus and travel restrictions are stifling growth potential.

Meanwhile, Swiss industry has also already made up in large part for last spring's losses. The Purchasing Managers Index (PMI) for industry is back to February levels, and production is ramping up in many places. However, the employment market remains tense according to the July PMI survey, even though short-time working is being phased out. In July, just 16% of the workforce was affected by short-time working, which is well below the levels in May (28%) and June (27%).

Industrial production in Switzerland is recovering

Last data point: July 2020
Sources:, Credit Suisse

Interest rates: No changes to prime rates in the near future

Central banks are providing plenty of liquidity with measures such as bond buying programs. Interest rate cuts are not a possibility because the prime rates are already zero or even negative almost everywhere. It is also unlikely for now that the Fed will follow the Bank of Japan's lead and directly intervene in certain yield curve segments. The Swiss National Bank (SNB) looks set to keep its policy rate as is until further notice. As long as the euro holds its ground, there will be no need for the SNB to intervene on the foreign exchange market.

Prime rates remain around zero percent

Last data point: August 16, 2020
Sources: Datastream, Credit Suisse

Currencies: SNB restricting the Swiss franc's appreciation potential

Now that the debate on the EU recovery fund has been settled, the euro has been able to catch up to the Swiss franc again. At the same time, global economic recovery is likely to benefit the common currency, which tends to be cyclical. Any geopolitical risks that would boost the Swiss franc are not likely to escalate at the moment. Therefore, we expect the Swiss franc to be somewhat weaker against the euro. Should the risk arise, the SNB would intervene on the foreign exchange market to stop the Swiss franc appreciating too quickly.

Euro benefits from the agreement on the EU recovery fund

Last data point: August 17, 2020
Sources: Bloomberg, Credit Suisse

Equities: Reporting season better than expected

Although profit expectations had been reduced greatly in the wake of the COVID-19 pandemic, companies ultimately performed better than the forecasts. While the effects on the profits of cyclical companies remain severe, companies from the technology and health sectors in particular performed very well. At a regional level, companies in Switzerland performed well, which is why we are reconfirming our positive forecast for Swiss equities.

Earnings per share not as low as expected

Last data point: August 11, 2020
Sources: FactSet Estimates, Credit Suisse

Commodities: Gold reaches an all-time high

Commodity prices continue to recover. Gold has broken a new record, not only in US dollars but also in Swiss francs. This is due in part to the continued decline in US real interest rates and a weaker US dollar. While a brief pause is possible, the outlook remains positive, because the interest and foreign currency environment is likely to hold the attention of many investors. Oil prices also remain buoyant. However, it will take until about mid-2021 until the situation gets back to normal.

All-time high for the price of gold

Last data point: August 17, 2020
Sources: Bloomberg, Credit Suisse

Real estate: COVID-19 has little impact on rental apartment construction

Project developers have also furrowed their brows during the COVID-19 crisis. Based on the number of planning applications, in the second quarter of 2020 there were 18% fewer rental apartments planned year on year. However, this figure is likely exaggerated because some cantons did not file all of their planning applications during the lockdown. For the time being, construction activity is set to remain robust. Applications caught up somewhat back in June, and the number of approved rental apartments has risen again recently.

Coronavirus-related decrease in the number of planning applications

Last data point: June 2020
Sources: Baublatt, Credit Suisse

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