(24 December 2019)DAILY MARKET BRIEF 1:What do global risks mean for Switzerland?

Under the headline “Year Ahead 2020 – The Year of Choices,” CIO recently spelled out its view on how investors are likely to cope with the changing global market environment. From the presidential election in the US to trade and fiscal policy, future performance is increasingly determined by political decisions. Switzerland is not immune to this phenomenon. The current issue of “Investing in Switzerland,” published by the CIO Switzerland analyst team, aims to supplement the Year Ahead and to support investors in their upcoming portfolio decisions. Although the Swiss economy continued to expand with solid growth of 0.4 percent in the third quarter, the global economic slowdown should have an impact on Swiss exports and investments next year, explains CIO Swiss economist Alessandro Bee. Consumption, however, will likely be a stabilizing factor, with the SNB ready to intervene if necessary.

Following a strong start to 2019, global risks have led to a significant decline in profits for Swiss exporters – although they were supported in the second half of the year by an increasingly simple comparative baseline, writes CIO equity analyst Switzerland, Stefan Meyer. A slowdown is to be expected for next year, but Swiss corporate earnings should continue to improve slightly in 2020, he believes. “Although equity valuations are increasingly expensive, dividend yields remain attractive.” In view of the current environment and upcoming challenges, he prefers dividend-based investment strategies and pioneers in sustainability.

2019 was a good year for the Swiss bond market. The total return on the Swiss bond market (SBI Total AAA-BBB) amounted to 4.1% by the end of November, compared with just under 0.1% for full-year 2018. This was due to the sharp fall in interest rates coupled with lower risk premiums, says credit analyst Alexandra Bossert. For next year, she expects a lower – or even negative – total return. She advises investors to make a strict selection of securities, to review the bond portfolio in terms of credit risk and to prevent clustering.

Investments in Swiss real estate stocks also yielded very good returns in 2019, explains CIO real estate specialist Maciej Skoczek. However, high valuations, rising vacancy rates and the economic slowdown are weighing on the outlook. He believes that stocks with attractive dividends and payout yields are likely to be the focus of investors in 2020.

By UBS