12 February 2016 – Swiss and global market roundup.
Brought to you by Investec Switzerland.
The SMI is expected to underperform global markets again this week after stocks lost further ground on rapidly declining global investor sentiment. Equity markets around the world tumbled as Japan, Europe and emerging Asia suffered heavy losses with global banking stocks leading falls. The Chinese year of the Monkey began with a difficult start as Hong Kong’s Hang Seng suffered the worst lunar New Year opening since 1994.
In Switzerland, the SMI suffered major drawdowns after investors continued to punish financial heavyweights Credit Suisse and UBS after last week’s disappointing earnings releases. Credit Suisse Group AG plunged to a 27-year low this week as the selloff across the banking industry compounded doubts about Chief Executive Officer Tidjane Thiam’s restructuring plans. Banking stocks around the world have seen some of the biggest share price drops since the start of the year.
Further short term pressure for the Swiss economy came from a higher Swiss Franc this week as investors flee the equity rout and turn to traditional safe havens. Swiss National Bank President Thomas Jordan reiterated this week that officials are prepared to intervene to weaken the franc’s rally in an attempt to stave off further inflows. We have “negative rates, and we’re prepared to intervene in foreign exchange markets,” Jordan told Bilanz magazine. Investors appear to be ignoring the warning and the Swiss Franc rebounded this week from its weakest levels against peers since the SNB scrapped its exchange-rate cap in January 2015.
The strong Swiss franc is to be putting additional pressure on the already slowing Swiss economy. A report published this week showed that Switzerland’s unemployment rate rose in January for the fourth month in a row. Unemployment rose to a non-seasonally adjusted 3.8 percent, reaching its highest level in nearly six years. Swiss exporters have been hit particularly hard with employers reportedly cutting thousands of jobs in the past year after the central bank abandoned its cap of 1.20 francs per euro. The franc soared as much as 30 percent against the euro afterwards, making Swiss exports more expensive.
In company news, Zurich Insurance Group AG, Switzerland’s biggest insurer, reported a fourth-quarter loss this week after damage claims ranging from the Tianjin disaster in China to storms in the U.K. and Ireland. The net loss was $424 million compared with a profit of $860 million a year earlier, the Zurich-based company said in a statement on Thursday.
Actelion, Europe’s largest biotechnology company, bucked the gloomy news trend this week to forecast that core earnings would grow in 2016, defying concerns about rising generic competition in its main pulmonary arterial hypertension drug business. This year, Actelion expects a small percentage increase in core earnings at constant exchange rates. While that is under the 14 percent increase in 2015, it exceeds analyst forecasts for a potential drop in profit.