30th October 2017
Erika Mesmer, Client Relationship Manager
2017 so far is an excellent year for equities in general. Taking a closer look at Swiss equities, they have progressed by more than 17% since the beginning of the year.
Luxury companies, like Richemont and Swatch, have, to the end of September, even progressed by more than 30%. While 2016 was a difficult year for this sector, with a challenging environment, so is 2017 turning out to be a year, where the picture is much brighter. Demand is back, especially in China but also in Europe and strengthening foreign currencies support their exports, which allows these companies to report solid sales growth.
Industrial companies, such as Sika and Kühne+Nagel, continue on their excellent results from last year. As for the luxury sector, they benefit from the strong worldwide growth, generating higher demands, combined with a weaker home currency.
What is true for these two sectors in particular, benefits the Swiss equity market in general: the economic environment is excellent, with all regions in the world posting growth simultaneously. This combined with a Swiss franc weakening against most major currencies generates a good environment for Swiss companies to be active in.
However after the strong progression since the beginning of the year, the question about expensiveness of companies must be raised. Valuations are high, but as Robert Shiller said in a recent interview to the Barron’s and speaking about the US equity market: “this doesn’t mean a turnaround is in the cards”. What applies for the very highly valued US market, applies a fortiori for the Swiss market. Solid company results and positive perspectives hence still justify rising markets.
Putting this year’s strong performance in perspective over time, the good returns of Swiss equities do not surprise. Since 1995 the IAM’s Swiss equity composite has generated an annual compounded rate of return of 9.8%, compared to the Swiss Performance Index SPI, which returned 8.2% over the same period, this with volatility lower than the index at 14.5% (vs 14.8%). Swiss equities are hence an asset class, which over the long term generate very comfortable returns!