Blog

perspectives 01/2025

Article written on 6 January 2025

by Luca Carrozzo

Welcome to the fascinating world of Switzerland – a country known not just for its majestic Alps and delicious chocolate, but also for its bravery and its stability in turbulent times. While many central banks were acting cautiously last year, the Swiss National Bank stepped up, cutting interest rates at all four of its meetings. A bold and far-sighted decision that exemplifies a resolute approach to challenges.

At a time when our neighbours in France and Germany are struggling with political crises and a US president is unleashing global uncertainty, Switzerland remains a calm anchor of stability. In this country, not only is the political course plotted prudently – economic decisions are also taken with foresight. The debt brake protects the federal budget against structural imbalances and direct democracy ensures maximum transparency and voter involvement; a model that offers stability in turbulent times.

This reliability may soon have a positive impact on the Swiss equity market. Many companies that were hit by the strong Swiss franc over recent years are now modestly valued and offer enormous potential. A promising starting point for investors.

One year has drawn to a close and another one is getting under way, so it’s the season for good wishes and new resolutions. What do we want for Switzerland? We want it to keep its bravery and resoluteness. May it remain an inspiration – a bastion of stability in a changing world. Here’s to a Switzerland that shows bravery and stability can go hand in hand – and that is constantly creating new perspectives!

Luca Carrozzo

CIO

Economic prospects

The extent to which Swiss inflation declined last year came as a surprise. The combination of lower prices and a strong domestic currency encouraged the SNB to cut its policy rate from 1.75% to 0.50%, starting in spring 2024. There is still no sign of a recovery in the industrial sector and the persistently weak growth in the euro area is having a dampening effect on Swiss exporters. The SNB forecast for economic growth in 2025 is 1.0-1.5%; in other words, below potential once again. Average inflation is expected to be 0.3%.

Macroeconomic environment robust in spite of everything

Once again the US economy stands out for its dynamism and resilience despite high interest rates, bringing it ever closer to the desired soft landing. In Europe, especially in the core countries, the economy is sluggish. The combination of weak economic activity and falling consumer prices should encourage the ECB to keep loosening monetary policy. China has been dealing with slowing growth for some time. Domestic demand is especially weak. The government will therefore likely be keen to get the economy back on track in 2025 by means of monetary and fiscal measures.

Uncertainty factors like confrontational US trade policy going forward, further heightening in geopolitical tensions and additional structural problems are definitely a risk to the world economy. But despite the unspectacular and uncertain outlook for global growth, it is still showing signs of a certain robust good health.

Markets

Equity markets have more upside potential

Even though equity markets (with the exception of Switzerland) enjoyed above-average performance in 2024, the current year looks set to be positive too. Central banks will keep cutting rates, the European economy has likely passed its low point, equity market valuations are fundamentally justified, corporate earnings growth is picking up and returning to double digits and Donald Trump will do everything in his power to ensure the US economy at least performs well and geopolitical tensions may ebb. (bae)

Swiss equities

Swiss equities lagged their international peers in 2024. Nestlé, the company with the highest weighting, put in a miserable performance, falling 20%. In 2025 we expect the Swiss equity market to be driven up by a movement in the opposite direction by Roche and Nestlé. Moreover, aggressive rate cuts by the SNB will once again put pressure on investors to buy. Amongst blue chips we favour Nestlé, Sika and UBS; in second-liners Bachem, Straumann and VAT Group. (bae)

European equities

Sentiment indicators for the euro area economy have been gloomy recently. Hence the ECB cut interest rates by 0.25% again in December, and held out the prospect of further reductions. But political uncertainties have risen, especially in Germany and France, and there is the threat of new tariffs and trade wars under Donald Trump. We nevertheless expect more positive performance from the markets in 2025 as monetary policy is loosened. Our recommendations for Europe are ASML LVMH and Schneider Electric. (wan)

US equities

US equity markets are at record highs. 2024 benefited from falls in interest rates and the election of Donald Trump. Companies are expecting strong profit growth on average, and 2025 should be another good year for results. Trump’s close association with the equity market, the anticipated interest rate cuts and an America First policy look set to drive Wall Street higher. We recommend NVIDIA, Merck and Alphabet. (amm)

Bonds

Interest rates in Switzerland declined significantly across all maturities in 2024, driving a good bond market performance. The consequence, however, is that we are now back in a low interest rate environment. Declining inflation means the market is already pricing in more interest rate cuts from the SNB. Although we are positive on the performance of Swiss bonds going forward, the upside potential in 2025 is likely to be limited. We are focusing on corporate issues from solid debtors in shorter maturities.