15 January 2016 – Swiss and global market roundup.
Brought to you by Investec Switzerland.
Despite Swiss stocks holding up slightly better than other global equity markets this week, the SMI followed the sell-off in US and Chinese equities as investors sought safe haven assets amid anxiety over the state of the global economy and collapse in the price of oil.
Volatility remained high but the panic seen in financial markets this and last week has receded since Chinese policy makers intervened to halt the yuan’s drop to a five-year low, reducing the risk of a currency war.
Markets were shaky but saw a rebounded in the middle of this week amid speculation that the recent selloff had gone too far, leaving investors the opportunity to buy stocks cheaper. However, sentiment turned again after oil fell below $30, the lowest level in the last 12 years, increasing pressure on oil exposed economies. Swiss stocks could not escape this dampened investor sentiment and global equity sell-off while Swiss economic data was light.
A report showed that November was a poor month for Swiss retailers. Retail sales dropped by a painful 2.1% year on year in November, a further acceleration from the 1.1% decline recorded in October. The domestic consumer sector had been relatively solid through 2015 as consumers benefited from lower import prices. However, the challenges faced by Switzerland’s tourism industry have been further compounded by a lack of snow in December.
With the stronger franc depressing the price of imports, Consumer prices fell 1.1% in 2015, the most since 1950. They are expected to fall again this year before rising in 2017, according to the central bank. The SNB added that declining domestic prices are a “necessary part of the adjustment process” for the economy to stay competitive. However, SNB Vice President Fritz Zurbruegg reaffirmed that the economic backdrop remains far from normal and said that the SNB is prepared to intervene directly in the foreign exchange market to tackle the “overvalued” franc.
Not all news was bad. A Swiss company prospering despite the strong Swiss franc is the waterproofing and chemicals company Sika. The firm achieved accelerated sales growth of 8.3% in the fourth quarter of 2015, while total sales for the year rose 6.2% measured in local currencies. The firm expects an above-average increase in its operating result for 2016. Because the targets set out in its 2018 strategic plan will be reached two years ahead of schedule, targets have been revised upwards.
The SMI’s biggest gainer this week is Swiss sanitary equipment maker Geberit AG. The company reported a full-year sales increase of 24.2%, bringing the year’s revenue to nearly CHF 2.6 billion. Despite the revenue increase, the firm is expecting its 2015 operating margins to be below those of a year ago, as the company’s profitability absorbs a hit from an acquisition and negative currency effects. The share price of Transocean, one of the world’s largest offshore drilling contractors, was once again flashing red as the continued slump in the price of oil took its toll.