Accessing Switzerland: Running with the bulls
The Swiss market has seen a strong bull run starting last year and extending into this. The major appeal to outside investors remains large-cap highly liquid companies such as Nestlé, pharmaceuticals such as Novartis (the product of the Sandoz-Ciba merger) and the financials. Analysts also point to selective export-oriented mid caps and small caps, which should show strong growth this year.
Institutional investors are penalised, however, by stamp duty of 0.15-0.3% on each transaction. Institutional business comes largely from domestic pension funds, making the market less attractive to non-domestic institutions.
I would advise an institution to go to Swiss equities primarily for liquid stocks," says Peter Stoll, head of asset management at UBS. "We have companies that are strong in a global context, Novartis, ABB, and the banks and insurance. We also have some mid- and small-cap niche players, but I would recommend a Swiss-based asset manager. Look for a fund or a comingled account involving a lot of fundamental research. For those who want to look deeper small-cap Switzerland is interesting."
Thomas Vock, head of securities at Zurich Insurance, advises institutional investors that: "It is still interesting to go into the right sectors within Switzerland, the large promising stock. They can chose a local investment manager or buy a pooled product." He sees few arguments against equity at the moment. "We have low interest rates, steep yield curves and strong foreign currencies that translate into good earnings on the company side."
He also suggests analysts may need to forget traditional valuation methods. Globalisation of the whole market could mean that rather than the traditional 80% capacity being inflationary, it may need to reach 85% or maybe 90%. "We have the impact of liquidity and demographics. People have to save by themselves and it is known that long-term equity investments are rewarded more than fixed income."
Karl Grob, a member of the management committee of Julius Bär Asset Management urges caution. "I think that the market has run quite far, and I think that we are in a dangerous area.
"A market correction would be healthy now, sooner rather than later, because if the market runs by several hundred points more, I think we could have a 1987 scenario. We don't think that on valuation the market is far away on the fundamentals. We are not at 30 p/e, we are at 18 - only a few points over the long-term valuation - but if the estimations of the earnings are not fulfilled that could cause a correction."
Stoll disagrees: "Depending on the dollar, our export industries may recover. But tightening of monetary policy is not to be expected. There might be a slight uptake in the second half and equity investments are more risky. There might be opportunities to lock in some gains but I do not fear a crash. I imagine some setbacks, between 5 and 8% while the next upleg will be very valuable.""