perspectives 02/2025

The carousel of geopolitics is often very uncertain, and players have to adapt quickly as circumstances change. A recent example of this was when President Zelenskyy of Ukraine and US President Trump got into a heated debate in the White House about gratitude and commodity deals. The same dynamics were visible when the «coalition of the willing» met in London, agreeing to put more pressure on Moscow and give security guarantees to Ukraine. Unexpected U-turns and conflicts can occur at any time, throwing the balance of power into disarray and unsettling global markets.

This brings us to a key issue: the world of finance. Investors are like spectators at the circus; they react to the geopolitical show and get quite a few surprises. Investment, trade deals, tariffs, commodity deals and economic sanctions don’t just affect the stability of individual countries - they also have an impact on global economic stability. Geopolitics and finance are undeniably intertwined, and figuring out the relationship between the two is crucial for analysing current and future trends.

Our job as asset managers is to understand and navigate these two complex worlds. As we do so, it’s plain to see how strong the parallels are with the unpredictability of a circus performance. Let me finish with a tip for our readers: don’t let yourself be rattled by all the turmoil on the global stage. The old saying, «stock markets driven by politics never get very far» will turn out to be true once again.

Luca Carrozzo

CIO

Eco­nomic pro­spects

Swiss economic growth has been solid and broad based recently. Even so, lead indicators are not suggesting any major acceleration in the months ahead. The State Secretariat for Economic Affairs (SECO) expects gross domestic product to grow just 1.4% this year. However, with trade and geopolitical risks on the one hand and a potentially more expansive European fiscal policy on the other, accurate economic forecasts are difficult. In Switzerland, consumers are still feeling little pressure on prices, which encouraged the Swiss National Bank to loosen monetary policy for the fifth time in a row in March.

Europe’s ability to defend itself

Europe’s confidence in the United States as a reliable partner has already taken a knock under the new administration. This is a problem, given the enormous reliance on US defence goods. European emancipation is likely to be difficult; the alternatives are neither cheap nor readily available. Nevertheless, a new era of financial policy appears to be dawning in Europe. European Commission President Ursula von der Leyen recently submitted a proposal to spend EUR 800 billion on strengthening European defence, and in Germany too the federal government is planning to invest hundreds of billions in armaments and infrastructure in future.

Spending on that scale certainly has the potential to make a positive impact on European economic growth and set stock markets on an upward course. However, the price will be a further rise in government debt. As we all know, what makes government debt sustainable is not a particular level of borrowing, but confidence on the part of lenders that the borrower has the capacity to pay it back. This can be problematic, because it means a country that is highly indebted is effectively exposed to sentiment that is capricious and hard to predict. (muc)

Markets

Volatile sideways trend expected

Stock markets in Europe and Switzerland were by up double-digit percentages in the first quarter, while US stocks were still digesting the major gains they made last year. In the second quarter, uncertainties over trade policy, the economy and inflation and the war in Ukraine will result in further fluctuations. But risks also bring opportunities, so we anticipate a sideways trend overall on equity markets. As long as interest rates fall or (as in Switzerland) stay low, it’s all systems go for the stock market. (bae)

Swiss equities

With price rises of 20% on the two defensive index heavyweights Roche and Nestlé, the Swiss market has put in an outstanding performance by international standards since the start of the year. The SNB has cut its policy rate to 0.25%, so people in Switzerland are once again under pressure to invest. Any setbacks should be consistently seized to add to top-quality stocks. Our favourite large caps are ABB, Sika and Richemont; among second liners we like Tecan, VAT Group and Accelleron. (bae)

European equities

The ECB cut rates again on 6 March 2025. GDP growth is now expected top be lower in 2025 and inflation higher (2.3% instead of 2.1%). Given the most extensive armaments and infrastructure programme the EU has ever seen, worth EUR 800 billion, we assume the market will continue along its positive course. Our focus is on cyclicals, interest rate-sensitive stocks and quality companies. Our recommendations for Europe are ASML, Sanofi and Schneider Electric. (wan)

US equities

The stock market got off to an unusually weak and volatile start to the year. The main drivers were the economic data, which remain strong, and the policies being pursued by President Trump, who is keeping the world economy on the hop with threats of import tariffs on foreign goods. We expect markets will continue to move sideways and be volatile until interest rate cuts resume in the USA, which is expected over the summer. We remain optimistic about the prospects for markets in 2025. We recommend NVIDIA, Merck and Alphabet. (amm)

Bonds

Although the Swiss National Bank cut its policy rate once again in March, the yield curve has risen sharply for maturities of 12 months or more since the start of 2025. Plans for fiscal policy in Europe in particular are raising hopes of more robust growth in the eurozone, and especially higher prices. This has pushed up interest rates in Switzerland and Europe, hitting the bond markets accordingly. 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. (muc)