Luca Carrozzo, Chief Investment Officer of Bank CIC in an interview on the current market situation

On 1 January 2023, Luca Carrozzo became the new Chief Investment Officer of Bank CIC, making him responsible for investment strategy. It’s time to take a look at the markets with him.

Both of the first two quarters brought lots of bad news: fears of inflation, rate hikes and a merger of the two biggest banks in Switzerland. How do you see things panning out in the near term? Will the markets be able to calm down?

Markets have actually performed pretty well so far in 2023. This is something of a surprise, as the points you mentioned should, if anything, be negative. But the stock market has shown its resilience once again. The collapse of some smaller US banks sparked a degree of nervousness on the markets, but the price corrections seen at the time have now been made up.

What do you think is the likelihood of a major market crash?

When we look back at history, again and again we see periods in which equity markets were more volatile, with a 30% fall occurring every ten years. The rhythm has picked up in the last 30 years, but the equity market has always been fairly quick to recover.


Essentially, the long-term trend confirms it’s heading upwards – there may be more nervousness, but things are going up.

How do you see equities, commodities, bonds and real estate performing in the short term?

The most important asset class is equities. Bonds offered little excitement for a long time during the period of zero, or even negative, interest rates. They’re now paying a yield again, which means both small savers and pension funds can buy them once more. It’s important here to compare the yield with the rate of inflation. With inflation in Switzerland currently at 1.6% and a total bond market return of 1.6%, we are at least compensating for the losses caused by inflation.


Commodities are driven by geopolitics. For example, if the situation in Taiwan were to deteriorate, this would immediately be felt on the commodity market. Real estate is one of the things our bank focuses on. Demand remains very high. There has been a great deal of building activity, but supply is still unable to meet demand. The fundamentals for the Swiss real estate index will remain solid, hence the asset class is attractive.

Why does it make sense to treat China as a separate country from other emerging markets; or to put it the other way round, why should investors have the option of excluding China?

China is the second-largest economy in the world. Its gross domestic product is USD 14.4 trillion; that’s a huge economic output, so it makes sense to look at China separately in the same way that it makes sense to look at the United States separately. There is one aspect investors need to watch with China, and that is the country’s political uncertainty. Chinese politics isn’t something you can rely on as far as we’re concerned, so at the moment we don’t invest in China in our portfolios.

To what extent can investors benefit from investing in emerging markets – in bonds, for example?

The weakness of the dollar in the last few months has made this a very attractive asset class. Bonds benefit from the weakness. How come? These countries often have their debt denominated in dollars. When the dollar is weak, this reduces their debt, leaving the country in a better position. Another thing in favour of emerging market bonds is the relatively low inflation in these countries.

What’s your view on the importance of diversifying investments?

In my opinion, there are two main criteria to bear in mind when you’re investing. The first is to back quality, the second is to diversify. Quality means good companies and good sectors. Along with diversification, this makes it possible to achieve steady growth.

Finally, will interest rates keep on rising, or are they high enough?

We had a very large number of rate hikes all over the world in 2023. In the United States, the Fed put them up faster than ever before. The US key interest rate is 5.5%. Excessively high interest rates can be dangerous for financial market players. Fed Chair Jerome Powell has said there won’t be any rate cuts in 2023. He has to say that, because otherwise he would be confirming that the rate hikes have strangled the economy. This has definitely not been the case, even though consumer prices are still at a high level. I’m not expecting inflation to fall back to where it was before the crisis, because it’s a structural issue. Interest rates will stay at a higher level.

The key interest rate in the EU is currently 4.25%. ECB President Christine Lagarde will only make one or two more hikes, even though she’s facing a huge issue: the high level of debt in the eurozone. Each time she hikes rates further, the funding costs of EU countries go up because of their borrowings.

In Switzerland, we’re going against the trend to some extent. The chairman of the SNB Thomas Jordan and his team are chiefly concerned about three things: the franc, the real estate market and inflation. Inflation is trending downwards, so there’s no real need for another rate hike. The real estate market isn’t overheating either, and the franc is very stable. So at the moment, we’re expecting interest rates in Switzerland to stay roughly where they are, i.e. around 1.75%.