30 June 2011: SC – No reason for great corrections


The debt crisis in the Euro area and the spluttering of the US economic trend engine are at present causing a depressed mood on the markets. In the medium term, however, a solution in Greece and a better US economy are to be expected which is why equities still remain somewhat overweighted…..

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            In financial markets in the Euro area, the debt crisis has long since developed into a long-running issue. The mood among investors is very largely determined by the reorganisation case, Greece, and other Euro countries’ rescue attempts. It is to be assumed that, despite all resistance, economic common sense will prevail and the country will accept further economy measures. The alternative to that would be national bankruptcy with even more drastic consequences for the economic system.
            Markets are not receiving any support at present from the level of American business activity. The greater number of negative surprises among important economic index figures shows that the economy’s recovery is taking place more slowly than expected. The reasons for this lie in the economic shocks which the accident in Fukushima, but also the powerful tornadoes in the USA provoked. But these negative effects should not last long and, in all probability, in the following months the economy will change to a more powerful growth course again. That is why we have still overweighted equities all in all, even if only to a relatively small extent.

            Overvaluation of the Swiss Franc
            The debt crisis in the European currency union does not remain without influence on currency strategy. As a further aggravation of the crisis is not to be ruled out, we are neutrally positioned in the EUR that is under pressure. We have overweighted the USD as we are reckoning with a more favourable economic development in the USA in the coming months. We are also expecting rising exchange rates in the case of the commodity currencies AUD and NOK, whereas the Swiss Franc is clearly overvalued measured by its purchasing power parity. However, so long as there are no signs of a viable solution for the crisis, the attractive force of the CHF remains great.
            In the case of fixed-interest bearing investments, we prefer corporate bonds to government papers as the risks of failure are still slight. In direct comparison with equities, high yield bonds have lost a little of their attractiveness.

            The sense of insecurity on markets has led to equities from the Euro area becoming very favourable in the meantime. According to our calculations, the undervaluation amounts to some 50 percent. On the other hand, seen as a whole, securities from the emerging markets are valued somewhat high. We are expecting an above average development in the energy, investment goods and retail food trade branches. When selecting, we are paying particular attention at present to stock profiting from equity redemptions and increases in dividends.

            Source: ETFWorld – Swisscanto (Thomas Härter – Head of Investment Strategy)

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