Innovative and flexible. Swiss companies defy crises
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Innovative and flexible. Swiss companies defy crises.

The domestic economy is doing comparatively well in the midst of the COVID-19 crisis. This is partly because Swiss companies have learned the right lessons from the Swiss franc shock. They consistently rely on quality and innovation and thus help make Swiss exports crisis-resistant. 

Swiss exports: Companies rely on quality rather than price wars

Following the discontinuation of the exchange rate floor between the Swiss franc and the euro on January 15, 2015, the scenario of deflation, a collapse in sales, recession, and the associated mass unemployment looked probable. Fortunately this did not occur. The Swiss economy once again flourished, as was reflected in the performance of the SMI. Since January 2015, the SMI has surged by an average of 7.6 per cent annually, thereby outperforming both the DAX and the EURO STOXX 500.

But how could the Swiss economy absorb such a shock and emerge even stronger than before? It became apparent that Swiss companies were able to adapt to the changed parameters relatively quickly. Even before 2015, the appreciation of the franc had proved a challenge for the Swiss private sector. Swiss companies had avoided being dragged into a price war with their foreign competitors and focused on the aspect of quality. This resulted in a shift in market shares toward higher-value, more expensive goods. It is interesting to note that although the franc appreciated significantly over the period 1996-2015, export sales actually more than doubled over the same period.

Swiss exports show growth

Swiss exports: Doubling of turnover

Export sales and CHF nominal exchange rate indices (1996=100)
Source: SNB, SECO, Exchange rate fluctuations and quality composition of exports, 07.09.2017

Overcoming a crisis through innovation

Particularly in uncertain times such as the current year, innovative and flexible companies demonstrate considerable resilience in the face of a crisis. Switzerland is distinguished by the powerful innovation drive of its private sector, which boasts a significant proportion of knowledge-intensive labor as well as high research and development expenditure.

For example, the elevator and escalator manufacturer Schindler has made a virtue of necessity, and has actively helped to curb the proliferation of coronavirus by offering effective solutions for using its elevators and escalators more safely, in a way that prevents germ transmission.

Swiss exports are recovering quickly by international comparison

To date, Switzerland has coped relatively well with the coronavirus crisis. Swiss exports bounced back in the summer, reflecting the dynamic recovery in key export markets. Indeed, when viewed in overall terms, export volumes had returned to their pre-crisis levels by August. However, not all sectors benefited equally. Whereas the foreign trade volumes of the chemical-pharmaceutical industry have developed strongly, the recovery in the vehicle construction and watchmaking sectors has proved sluggish. The anticipated weakening of global growth over the next few months is likely to make the latter trend even more pronounced. This is one of the reasons why investors need to prepare for a modest, albeit positive growth in 2021. In an international economic comparison, Switzerland is in a better situation than the US or the euro zone.

Swiss companies: Swiss economy is recovering

Swiss companies: Recovery of the Swiss economy in comparison

Recovery of the Swiss economy in comparison with the US, Europe, and the UK up to September 9, 2020, and forecast up to 2022
Last data point: 09.09.2020
Source: Credit Suisse AG

Investments in Swiss companies should continue to be worthwhile

Furthermore, the SNB has decided to remain on its current course with a readiness to intervene on the currency market and a prime rate of -0.75 percent. Therefore, the interest on government bonds remains close to the historic lows, which increases the relative attractiveness of corporate bonds. Since default rates are likely to increase with the riskier bonds, bonds with higher creditworthiness are preferred.

The Swiss equity market has delivered below-average performance over the last three months, despite the fact that corporate earnings look robust. Swiss equities also remain attractive in the current environment, which is still characterized by uncertainty. In addition to the health-care sector opportunities are to be found in construction materials. This sub-segment of the materials sector can be expected to benefit disproportionately from future infrastructure projects.

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