CIC perspectives October 2022

Quarterly market outlook

Dear Clients,

Did you know that the expression “putting all your eggs in one basket” first appeared in print in Miguel de Cervantes’ book Don Quijote? A less than neutral observer might have the same thought about the gas crisis. Was too much reliance placed on too few suppliers in the past? Or was it just that no one thought it would be a good idea to wonder where a suitable replacement might be found at short notice if one of eggs in the gas basket turned out to be rotten? And doesn’t Don Quijote’s tilting against windmills inevitably remind us of central banks combating inflation? Just like the sad hero of the novel, they have encountered only mockery and a lack of sympathy for their sometimes vague decisions and the way they have attempted to justify them. As is so often the case, the people at the sharp end of these calls are consumers and business. From the point of view of consumers, we can conclude that they need a sustainable and well-diversified strategy to attain long-term investment success. From the point of view of business, we can only hope it tackles the future in a way that is far-sighted and forward looking.

Mario Geniale
Chief Investment Officer

Economic prospects

A cold wind could be blowing through the economy in the next few months. This is because high energy costs are continuing to weigh on households’ purchasing power, which is bad for consumption. Central banks have had to discard their post-COVID-19 plans to gradually normalise monetary policy because of the price developments resulting from Russia’s invasion of Ukraine. Instead, they have now switched their focus to the escalating inflation and also appear to be accepting cuts in relation to growth to ensure price stability.

The fight against inflation has begun

It remains to be seen what the timeframe will be for central banks’ fight against inflation with sharp rises in interest rates and a potential reduction in their balance sheets. However, this strategy seems precarious and could be short-lived, especially in Europe. Although the European Central Bank (ECB) has already raised the prospect of an anti-fragmentation instrument in order to counter any unjustified rise in the risk premiums for government bonds between EU member states, it will nonetheless try to avoid any monetary policy that would create serious difficulties for the periphery countries. In doing so, it could also anticipate that future negative growth will have an additional dampening effect on inflation. As long as inflation in other countries is significantly higher, the Swiss National Bank (SNB) is likely to make further efforts to strengthen the Swiss franc. Although this will make the situation more difficult for the export industry, it will make imported goods and services cheaper and help to maintain price stability.

Markets

A path full of obstacles

Central banks are taking the situation seriously and forcing investors to realise that the game of ultra-loose interest rate policies has come to an end in 2022. Stemming inflation is the top priority and comes at the expense of lower consumption and a drastic cooling of the economy. The search for a safe US dollar concerns not just gold, but also the equity markets. This is because the foreign sales generated by companies that are converted into USD are damaging margins. From mid-October, the focus will therefore shift towards the quarterly figures, which will be revised downwards by analysts in the run-up to the announcement.

more...

Equities Switzerland

Equity markets are likely to remain volatile in the final quarter. The SNB is trying to keep inflation under control with a combination of a strong franc and interest rate hikes. As the three index heavyweights Roche, Novartis and Nestlé have strong pricing power, their profit margins should remain relatively stable. The Swiss equity market is therefore also likely to do well in the current quarter compared with those of other countries. We favour quality stocks such as Roche, Partners Group and Straumann.(bae)

SMI

Equities Europe

High energy prices, fuelled by a lack of gas from Russia, are increasingly forcing political decision-makers to perform strategic acrobatics. And this in an environment full of unrest, since Italian politics is unstable and British Prime Minister Liz Truss is coming up against soaring inflation and inheriting a difficult political situation. The radical steps taken by the ECB with its decision to hike interest rates by a record margin are also making matters tricky. No easy undertaking, which calls for stockpicking. We favour Volkswagen, Enel and Philips.(goste)

Euro Stoxx 50

Equities US

The Fed is attempting to control the inflation figures through renewed interest rate hikes. So far, however, it has had only limited success. This is continuing to put a strain on equity markets. Input costs are currently rising very sharply, which is putting pressure on results and leading to a decline in profit margins. US equity markets must expect further volatility in the fourth quarter. However, we increasingly expect prices to bottom out and a good starting position to emerge for those entering the market. We recommend Alphabet, Amazon and Nvidia.(amm)

S&P 500

Bonds

After a temporary recovery over the summer, bond markets have been put back under pressure by continued price increases and the considerably more restrictive policies of central banks that have been introduced as a result. We expect longer-term interest rates to remain low by historical standards. Given that storm clouds are gathering, we see the higher yields as an opportunity to cautiously start to reduce underweighting in the case of fixed-income investments in relation to the speed and the quality of the bonds.(muc)

10-year Swiss swap rates

Topic

Artificial intelligence is disrupting the financial market

It is hard to predict the extent to which the financial sector will change in the long term as a result of machine learning and other technology. The fact is that the artificial intelligence (AI) revolution is already in full swing and having an impact on how banks and lenders make investment and financing decisions.

learn more...

In brief

Swiss Bike Cup and CIC ON: successful transition in Gstaad

From 2023 onwards, the Swiss Bike Cup will be officially called the CIC ON Swiss Bike Cup! On the weekend of 1 and 2 October 2022, Bank CIC (Switzerland) CEO Thomas Müller successfully took over the baton for the most important series of mountain bike races in Europe on behalf of Bank CIC. With him on the stage in Gstaad were Peter Herger (on the left), the CEO of Proffix, the previous title sponsor, and Armin Meier (on the right), founder and owner of Human Sports Management AG, the organisers of the Swiss Bike Cup. Thomas Müller sees parallels between the bank and mountain biking: “As an ambitious, typically Swiss medium-sized bank underpinned by sustainable values, the sport of mountain biking suits us perfectly. Mountain biking and banking both require commitment, a spirit of partnership and the ability to combine maximum performance with flexibility, reliability, perseverance and innovation. We are very much looking forward to the new partnership with the Swiss Bike Cup and some thrilling races.”

Further information on the CIC ON offering can be found at www.cic-on.ch.

3a retirement savings: time to invest in the future

If you want to start saving for the future in good time so you have enough money to pursue your dreams, then our 3a retirement solutions are just the thing for you. And there’s another advantage, too: the maximum annual contribution is also entirely tax-deductible. Investing in one of our more than 30 attractive retirement funds offers the opportunity for considerably higher returns, too. Generally, the longer you can leave your money invested, the better. As a client of Bank CIC, you can pick the fund you want from among four different investment strategies with varying equity weightings to bring you a big step closer to your saving goals.

Our new retirement savings graph at www.cic-on.ch/retirement compares the returns prospects on retirement funds and standard 3a retirement accounts – it’s worth taking a look!