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The case for a Swiss defence
Why Switzerland's equities could benefit if the cyclical stock rally runs out of steam
A defining feature of the stock market rally of the past two years has been the strong performance of cyclical stocks, those most sensitive to the ups and downs of the business cycle.
Since July 2016, shares of consumer discretionary, materials and IT companies have outpaced those of firms operating in traditionally defensive industries such as health care and telecommunications by 40 per cent. That’s the third widest performance gap on record. What is more, cyclical stocks are now trading at a 26 per cent premium on a cycle-adjusted basis to their defensive counterparts, a level not seen since 2010.
All this looks unsustainable at a time when global economic growth appears to be slowing. It also explains why Swiss stocks could turn out to be a bright spot in the next six months or so. Switzerland has the highest share of defensive stocks among major economies – at 60 per cent of the Swiss benchmark index’s market capitalisation. These are mainly pharmaceuticals and consumer staple businesses. Crucially, they come with attractive valuations – according to our calculations, Swiss stocks are trading at their cheapest levels relative to their global peers since 1995 (see chart).
Swiss stocks becoming cheap
Ratio of monthly total returns between MSCI Switzerland vs MSCI All-Country World in local currency (base = January 1995)
Source: Thomson Reuters Datastream, data covering period 06.01.1995 - 11.05.2018
more from multi-asset team
Change is in the air
Pictet Asset Management Strategy Unit
May 2018
Equity bulls beware
Supriya Menon, Senior Multi Asset Strategist
March 2018
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This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
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For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
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