2nd April 2019
Jean-Louis Richard, Senior Financial Analyst
The quarter is ready to close … on pleasing stock market performances in the main asset classes. Shares are up 12% in Switzerland and even 14% in the United States (in CHF). Real estate is flirting with an appreciation close to 10%, according to the figures of IAM real estate fund. Bonds are also up, as evidenced by the 1% appreciation of the SBI Swiss Bond Index.
The past three months are a backlash from the sharp correction in the fourth quarter of 2018, when Swiss equities fell by 9%. Investors reacted to a darkening of growth prospects combined with the scheduled rise in key bank rates by major central banks.
But in early 2019, central banks took note of the cyclical deterioration and reduced pressure on interest rates. This is the explanation of the good performance of bonds. Their prices rise when rates fall and vice versa. Indirectly, falling rates also give real estate and equities a boost by reducing the cost of capital for them. But this is not the whole explanation.
In recent weeks, economic indicators have stopped deteriorating; some improvements have even been recorded. The interpretation is that the economic slowdown could be less severe than investors had envisaged at the end of 2018.
The looming situation is a sluggish environment for central banks to no longer support the interest rate drag, but robust enough for companies to continue to grow their profits. Such a balance benefits the major asset classes, but it is difficult to maintain. The risk of slipping is important. In other words, for the sake of this first quarter, it is too early to claim victory.