It did not have to be: in the final of the Nations League soccer tournament this year, Switzerland had to console themselves with fourth place. But Vladimir Petkovic was still able to point out the positives, after losing to Portugal and England. “We are on equal footing with the greatest teams,” declared the coach of the national team. If the stock market offered a tournament comparable to that of the soccer event, Switzerland would have an excellent shot at victory in 2019. As we approach the end of the first half of the year, the SMI appears set to end the period 17% higher than at this time last year. The result outpaces renowned benchmarks such as the DAX, S&P® 500 or EURO STOXX® 50 (see graph). Nestlé is leading the offensive charge on the Swiss stock market. With a current stake of 18.3%, this food company is a true heavyweight on the SMI.
The value of Large Caps rose by more than a quarter over the first half of the year. Nestlé’s accelerated operative growth created a general buying mood: price increases and strong business in the Americas and Asia led to a first quarter result that, after adjustment for extraordinary items, was 3.4% higher than last year. Analysts had anticipated an increase of only 2.8% for the industry leader. CEO Mark Schneider is far from being satisfied. The corporation should continue to accelerate until 2020, once again achieving the earlier growth rate of 5%. And Schneider is actively restructuring the business to meet this goal. In mid-May, Nestlé sold its skincare division for CHF 10 billion to a consortium whose participants include the Swedish investor EQT and a sovereign wealth fund from Abu Dhabi. View more information on investment solutions on the topic “Swiss stock market: six months of superlatives”.
The macroeconomic side is not providing the stock market with much of a tailwind though. The Expert Group of the Federal Government just published its economic forecast for the summer. The economists state in their report that the international as well as the Swiss economy grew substantially in the first quarter. “But the outlook remains cautious, and uncertainty is widespread,” writes the Swiss Secretariat for Economic Affairs in a press release. In this light, the Expert Group is anticipating below-average growth in the Swiss economy of 1.2% in 2019. They predict that the economy will take off in the upcoming year, with the committee expecting gross domestic product (GDP) growth to achieve 1.7% next year. Nevertheless, Switzerland will not be able to maintain the strong growth of recent years (see graph). In 2018, the economy recorded the highest expansion rate since 2010.
So the SMI is not getting much help on the macroeconomic side. Indeed, large export-focused corporations are working in a difficult global environment. “The downside risks continue to be a significant factor for the global economy,” reports the Expert Group. They refer to the unresolved trade dispute between the US and China, and the political uncertainty in Europe. Besides Brexit, the “precarious economic and financial situation” in Italy worry the specialists. The Group is not alone with this assessment. Several central banks have recently reacted to the potential (or already occurring) economic slowdown. The ECB as well as the SNB have held firm to record low interest rates. At the same time, the monetary authorities at both institutions indicated their willingness to deploy crisis instruments if necessary. The US Federal Reserve meanwhile made a notable U-turn during the first half of 2019. The Fed raised interest rates at the end of 2018 and hinted at further rate hikes in the new year. But now the markets are convinced that the trade dispute will force the Fed to loosen the reins before the end of the year. The rate cut fancy played a major role in the stock buying spree that investors embarked upon in June. However, the potential cash flow injection cannot belie the current risks of this asset category. Maybe this is why the currently booming SMI presents a good opportunity for investors to think about securing their gains.
View more information on investment solutions on the topic “Swiss stock market: six months of superlatives”.
