31 December 2015 – 2015 Swiss and global market roundup.
Brought to you by Investec Switzerland.
The SMI is expected to end the year largely unchanged (-1.84%), achieving a modestly better performance than the MSCI World (-3.58%) in 2015. However, the year was more turbulent than these figures suggest as share prices fluctuated wildly throughout 2015, dominated by heightened central bank activity, ongoing global tensions, a continued emerging market economic slowdown and a significant rout in commodity prices.
Locally, the year started with a bang: the Swiss franc soared and the stock market briefly collapsed when on 15 January, the Swiss National Bank suddenly suspended its exchange rate cap of a minimum of 1.20 Swiss francs to the euro. The impact of this SNB action was, and still remains, the most significant issue for the Swiss economy in 2015 as the appreciation of the Swiss franc made Swiss firms less competitive and domestic goods more expensive for foreign customers. The expected consequence was export stagnation, further compounded by a slowdown in demand for watches and other discretionary items, in particular from Chinese consumers.
Nevertheless, with companies supported by lower input costs (due to the commodity and energy market crash) and robust domestic consumer confidence, the effect of the stronger Swiss franc was less disastrous than initially feared. Unemployment increased only slightly from 3.20% in 2014 to 3.40% at the end of this year, Swiss company earnings still mostly met estimates and the Swiss stock market managed to recover much of January’s losses.
Swiss Re is expected to be the year’s strongest performing SMI stock on the back of strong earnings results, fueling expectations of a generous shareholder dividend, along with the announcement of a new share buyback scheme. Potential merger and acquisition activity also helped boost investor sentiment this year. Syngenta’s share value rose more than 20% after the firm received formal takeover offers as the global agrochemicals industry continued to consolidate.
At the other end of the scale, it is no surprise that Richemont and Swatch are expected to be among the SMI’s worst performers as demand for luxury goods from abroad has continued to slow. This year’s outright SMI loser, however, is expected to be the offshore drilling contractor Transocean. The company’s shares have fallen more than 31% this year after the energy sector came under significant pressure as the price of oil tumbled.
Elsewhere, geopolitics and central bank policy again exerted significant influence on market sentiment. Greece’s battles with its Troika of creditors and the effect of a potential “Grexit” shook credit and equity markets early in the year, putting pressure on the euro and even raising questions about the future existence of the European Union. With the announcement of (yet another) new loan agreement, investors quickly forgot about the Greek tragedy. In June, a stream of negative data triggered the beginning of China’s infamous stock market crash, triggering a loss of more than 20% of its value in only one month. China’s slowdown and the government’s attempts to manage it (largely through currency devaluation) continued to weigh on financial markets over the summer as investors attempted to digest the “new normal” levels of growth expected from the world’s second largest economy.
Risk appetite did, however, celebrate a short-lived comeback in October on the back of expectations of further easing from the Bank of Japan and European Central Bank. Unfortunately, the extent of the monetary stimulus announced disappointed investors, dampening the autumn rally. The year’s central bank grand finale did, however, come in December when, on the back of robust economic figures, the Federal Reserve finally increased US interest rates for the first time in a decade. Despite the year’s prolonged anxiety around this pivotal move investors responded calmly, prompting somewhat lackluster but nevertheless positive momentum towards the end of the year.
World equities – % change in 2015
Government bond returns – % change in 2015
Currencies – % change in 2015