After market increases of 25% in 1995 and 19% in 1996, Swiss analysts are urging caution.
“We advise some hedging of positions after last year,” says Bert Röegsegger, head of research at ATAG Asset Management in Berne, “though we are also advising investors not to sell”.
Increased profits for Swiss multinationals thanks to the weaker currency should, he says, be balanced with US interest nervousness, which could prompt a correction.
He does not expect much change in the bond market. “At these interest rate levels you would be glad if you earned a coupon,” he says. He expects only a 50 basis point rise by the end of the year with equity growing by between 5 and 10%.
“The risk premium and risk reward ratio are not as good as last year,” he says, although the price ratio index is compared with other markets, Switzerland is not overvalued.
The uncharacteristically weak Swiss franc will also help mid-cap exporters, and those that have restructured should display earning momentum. “We are recommending some small and mid-cap funds and even some direct investment in companies.”
Anthony Parker, head of equity research at Kleinwort Benson, describes Switzerland as a “safe bet”, although he notes some contradictory attitudes among fund managers. Switzerland is the least favoured market even though pharmaceuticals, which dominate the Swiss index, are the highest-rated European sector.
He believes that the picture will change by the end of the year as investors move away from fashionable consumer stocks: “I think people will be less ambitious and settle back into pharmaceuticals as a safe option, so the Swiss market will come back into fashion. It feels a little bit too hot in the kitchen in European equities and a nice safe steady place like Switzerland will start to appeal once profit-taking sets in on this rally.”
The weak Swiss franc reinforces this picture. With 98% of major stock market companies’ business done outside Switzerland - banks are the exception - currency weakness will improve export performance and boost profits through repatriation. “I suspect that this will lead to a lot of analyst upgrades as the year goes on.”
A cautious assessment comes from Hans-Peter Ast, head of Swiss equities at UBS in Zurich: “This year, stick to a selective investment policy because of last year’s good performance.”
The best sectors, long term, will be banks, pharmaceuticals and cyclicals. Short term, he warns against banking, until expected restructuring takes place. He is bullish, long term, about all industrial sectors. He recommends low -caps and mid-caps, predicting “very good growth, better than with the highly valued blue chips,” although once again he warns investors to be selective.
Once it has consolidated the market should start to grow again towards the end of 1997, although there are concerns about the exchange rate. These concerns will in-crease if it appears that the euro will be a weak currency. Both Ast and Röegsegger ex-press confidence, however, that the dominance of German monetary policy and the presence of only hard currency countries in the initial stages will mean that the Swiss franc stays competitive and the market remains a safe bet as a result.
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