"Investors have good reason to be optimistic"
At this year's Credit Suisse Investment Conference, experts and investors spoke about trends, threats and opportunities in the field of investment. Burkhard Varnholt, Chief Investment Officer for Switzerland, outlined the prospects for the global economy's development. What's happening on the exchange and how the economy will develop.
World economy is expected to grow less in 2019
Burkhard Varnholt* opened his speech onstage at the Credit Suisse Investment Conference with the following comment: "By and large, the economy and the exchange are doing well." Nonetheless, media and current growth forecasts are making investors fearful of a recession, as the economy is expected to grow less in 2019 than in the previous year. However, for Varnholt it was clear that last year was a record year. The tax reform in the USA resulted in a payout with a high investment requirement. The International Monetary Fund's growth forecasts have now dropped from 3.7% to 3.5%. However, Varnholt stressed that 3.5% was still a lot.
In his opinion, the three most important questions currently preoccupying investors are:
- What's next for the economy?
- What does the trade dispute between the US and China mean for the economy?
- What can be expected from the exchange in 2019?
"The economy is showing no signs of a recession"
Despite a slowdown in growth, Credit Suisse's CIO for Switzerland is convinced that a recession is unlikely, as we are far removed from any indications of this:
It's a long time since unemployment has been as low as it is today, incomes have risen, and inflation remains low thanks to strong competition. In addition, there is liberal access to capital with low interest rates. This is leading to the banks being overcapitalized: "Nowadays, if you need capital from a bank, you can usually mobilize it without much trouble," confirmed Varnholt. In addition, government finances in Switzerland are excellent. And in the US and Europe, the fall in interest rates has outpaced the rise in indebtedness.
In brief: corporate balance sheets and consumption are healthy. Both the construction industry and exports can flourish in Switzerland as a result of low inflation and low interest rates. Switzerland will remain internationally competitive in future.
Importance of the trade dispute for the global economy
The trade dispute between the US and China is a thorn in the flesh of many entrepreneurs, but also of investors. However, Burkhard Varnholt believes that this is not an immediate threat to the global economy, as - with services making up 70% - today's economy is a services economy. The trade dispute will scarcely affect this sector. Varnholt does not dispute the fact that the trade dispute will be dramatic for those companies affected but argues that it will be harmless for the majority of businesses.
The US-China trade dispute is not a threat to the global economy.
What investors can expect from the exchange
All things considered, we can say that despite the geopolitical uncertainties, the exchange has fared well for 10 years - albeit with setbacks such as last year. This shouldn't change in 2019 either. Burkhard Varnholt is convinced of it: "Investors have good reason to be optimistic." Because the global economy is continuing to grow, just at a slightly slower pace.
In the short term, it makes sense to revalue equities against bonds. In 2019, the Fed is planning to stimulate the economy to achieve a higher inflation rate. It would therefore pay for Swiss investors to be patient. The second half of the year in particular offers opportunities for investors with balanced, globally diversified portfolios. "2019 may not only turn out to be significantly better for Swiss investors than 2018, but also has the potential to be a surprisingly positive year."