Market overview: Steady nerves were needed in 2022

2022 was a turbulent year, not least on the financial markets. So far, 2023 has got off to a much more promising start.

  • The bond markets faced major challenges last year, suffering sharp losses worldwide. However, there has been an upturn on the bond markets since the turn of the year. 

    Indexed performance of government bonds in Swiss francs

    100 = 01.01.2023

    This graphic shows the performance of government bonds from Switzerland, the USA and Germany in Swiss francs. The bond markets suffered painful losses in 2022.
    Source: SIX, Bloomberg Barclays

    The bond markets recorded sharp losses in 2022. The value of 10-year bonds issued by western industrial nations fell by between 10 and 20 percent over the course of the year. The UK was a negative outlier, posting losses of over 30 percent measured in Swiss francs. The appreciation of the US dollar led to an upturn in the performance of US equities measured in Swiss francs, which were trading at just 10 percent below their year-opening value by the end of the year. Since the turn of 2023, there has been a tangible sense of relief at entering a new calendar year. Bond markets are up, with the exception of Japan.

    Trend in 10-year yields to maturity

    In percent

    The graphic shows the performance of yields on 10-year government bonds in Switzerland, the USA and Germany. 10-year yields to maturity are an important benchmark for interest rate developments. A strong downward trend can be observed over the long term. However, we have seen a trend reversal towards rising interest rates since early 2020.
    Source: SIX, Bloomberg Barclays

    Yields to maturity climbed from one record high to the next last year. While the trend in the industrial nations was almost uniform over the first three quarters, differences emerged in the final quarter. In the USA and UK, yields to maturity hit new record highs by autumn before falling again, while they continued to rise in Europe. By the end of the year, yields on 10-year government bonds in Germany and Switzerland had reached their highest level since 2011.

    Credit spreads on corporate bonds

    In percent

    This graphic shows the difference between the yields to maturity on government and corporate bonds in US dollars, euros and Swiss francs. These spreads increased considerably in the first half of 2022, only to fall again just as quickly during the second half of the year.
    Source: Bloomberg Barclays

    The spreads demanded on corporate bonds experienced strong momentum last year. During the first half of the year, investors were concerned about high rates of inflation and the impact of geopolitical conflict. As a result, spreads in the eurozone briefly soared to over 2 percent. The situation eased significantly during the second half of the year, which led to the spreads on Swiss corporate bonds falling back below the 1-percent mark.

  • Despite a recovery rally on the equity markets in the fourth quarter of 2022, the losses from the start of the year could not be recouped. This means that the hopes and expectations for 2023 are all the greater.

    Indexed stock market performance in Swiss francs

    100 = 01.01.2023

    This graphic shows the performance of the stock markets in Switzerland, worldwide and in emerging markets over the past 12 months in Swiss francs. The equity markets endured sharp losses last year. The tide began to turn only at the start of the final quarter, and 2023 got off to a strong start.
    Source: SIX, MSCI

    After painful losses last year, the equity markets made a strong start to 2023. There’s great optimism that inflation and risks of recession are behind us. In the first two weeks of the new year alone, global equity markets rose by 5 percent, while emerging markets – driven by gains made by Chinese equities after the reopening of the country – were up by almost 8 percent. But the likelihood of a downturn remains high.

    Momentum of individual markets

    In percent

    The graphic shows the momentum of 12 key equity markets worldwide. Momentum compares the latest price level with the average figures from the past six months. After a long negative phase, momentum returned to positive territory recently.
    Source: MSCI

    A trend reversal emerged on the equity markets in the final quarter of 2022. Thanks to the strong start to the year, momentum has remained in positive territory. While China – the worst-performing nation, alongside Brazil, for a long period – is now also displaying positive momentum, Brazil is still lagging behind in last place. Brazilian equities in the retail sector came under particular pressure owing to the challenging political situation. Leading the way are the European equity markets, which have shown great ambition over recent weeks.

    Price/earnings ratio

    The graphic shows the price/earnings ratio (P/E ratio) for the stock markets in Switzerland, worldwide and in emerging markets since 2000. The P/E ratios of the three markets have declined considerably since summer 2020, thanks to rising corporate earnings and falling equity prices during the first half of 2022. The profit trend is now also increasingly stagnating or even in decline.
    Source: SIX, MSCI

    The ratio of equity prices to profit, known as the price/earnings ratio (P/E ratio), is a frequently used benchmark for equities. If the P/E ratio is disproportionately high, the equity is considered expensive. After major corrections to P/E ratios last year, driven by rising corporate profits and falling equity prices, there has been upward momentum again over recent weeks. This means that equities are becoming expensive again. The global average currently stands at 18. The most expensive at present are Indian equities, with a P/E ratio of 26.

  • Real estate investments were also not spared by the turbulent market conditions last year. By international comparison, Swiss real estate funds performed well, even achieving gains in December.

    Indexed performance of Swiss real estate funds

    100 = 01.01.2023

    The graphic shows the indexed average performance of listed Swiss real estate funds over the past 12 months. Sharp losses were recorded last year.
    Source: SIX

    The huge rise in capital market interest rates last year also took its toll on the real estate markets. The value of US real estate equities declined by 25 percent, while their European counterparts fell by almost 40 percent. Swiss real estate investments escaped relatively lightly: exchange-listed real estate equities were down by around 4 percent and real estate funds by 15 percent. The new year has started well, with gains of just under 3 percent.

    Premium on Swiss real estate funds and 10-year yields to maturity

    In percent

    This graphic shows the yield to maturity of 10-year Swiss government bonds and the premium on real estate properties contained in Swiss real estate funds since 2000. While interest rates rose sharply last year, premiums declined considerably once again, with a slight time lag.
    Source: SIX

    The premiums on the Swiss real estate market remain relatively low. While the prices of exchange-listed real estate investments rose slightly worldwide last month, the upturn in Switzerland was minimal. The premiums – the supplement paid on the inventory values of the properties – remain at a very low level compared with the long-term average. 

    Vacancy rate and real estate prices

    100 = January 2000 (left) and in percent (right)

    This graphic shows the vacancy rate of Swiss residential property and the price trend for single-family homes, rental properties and apartments. While prices for residential apartments and single-family homes in particular have climbed considerably since the start of the pandemic, rental property prices have dropped. The vacancy rate fell again for the first time last year, having previously risen continuously for ten years.
    Source: SNB, SFSO

    Both rents and residential property prices rose sharply again at the end of the year. The Swiss National Bank’s change in interest rate policy has had little impact on the real estate market so far. This may be due to the fact that the number of vacant apartments in Switzerland has decreased significantly over the past two years. As at 1 June, there were around 61,000 vacant apartments throughout Switzerland, which is 17,000 fewer than in 2020, the year of COVID-19.

    Three-month SARON and 10-year yields to maturity

    In percent

    This graphic shows the Swiss reference interest rate SARON with a three-month term and the yields to maturity of 10-year Swiss government bonds since 2000. The SARON recently rose sharply for the first time in seven years.
    Source: SNB, SFSO

    Interest rates on long-term mortgages in Switzerland fell slightly again recently. This is because yields to maturity on bonds have decreased slightly. Mortgage rates are based on bond yields. Variable Saron mortgages may become more expensive if the Swiss National Bank raises its key rate again, as market participants expect. 

  • Currencies

    The strengthening of the US dollar had a major impact on the currency markets in 2022. This trend did not reverse until winter, when cyclical and emerging market currencies made gains at the turn of the year. 

    Currency pairPricePPPNeutral rangeValuation
    Currency pair
    EUR/CHF
    Price
    1.01
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.79
    Neutral range Range of historically normal fluctuations.
    0.73 – 0.86
    Valuation
    Euro overvalued
    Currency pair
    USD/CHF
    Price
    0.93
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.76
    Neutral range Range of historically normal fluctuations.
    0.66 – 0.86
    Valuation
    USD overvalued
    Currency pair
    GBP/CHF
    Price
    1.13
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.19
    Neutral range Range of historically normal fluctuations.
    1.03 – 1.36
    Valuation
    Pound sterling neutral
    Currency pair
    JPY/CHF
    Price
    0.72
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.94
    Neutral range Range of historically normal fluctuations.
    0.79 – 1.09
    Valuation
    Yen undervalued
    Currency pair
    SEK/CHF
    Price
    8.90
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    9.79
    Neutral range Range of historically normal fluctuations.
    8.80 – 10.78
    Valuation
    Krona neutral
    Currency pair
    NOK/CHF
    Price
    9.37
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    10.53
    Neutral range Range of historically normal fluctuations.
    9.41 – 11.66
    Valuation
    Krone undervalued
    Currency pair
    EUR/USD
    Price
    1.09
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.04
    Neutral range Range of historically normal fluctuations.
    0.91 – 1.18
    Valuation
    Euro neutral
    Currency pair
    USD/JPY
    Price
    129.32
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    81.27
    Neutral range Range of historically normal fluctuations.
    64.92 – 97.61
    Valuation
    Yen undervalued
    Currency pair
    USD/CNY
    Price
    6.74
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    5.61
    Neutral range Range of historically normal fluctuations.
    5.28 – 5.94
    Valuation
    Renminbi undervalued

    Source: Web Financial Group

    The first three quarters of 2022 were dominated by a greatly strengthened US dollar. Hardly any currencies were able to defend their position against the dollar. It was not until autumn that the tide turned and the dollar was no longer able to maintain its dominant position. In January, the US currency hit a 6-month low against the euro and a 9-month low against the Swiss franc. However, the dollar still remains heavily overvalued against the franc. 

    The cyclical currencies experienced an upturn at the start of the year. Above all, the Australian, New Zealand and Canadian dollars made gains. Some emerging market currencies were also caught up in the optimism, including the Thai baht.

    Gold

    Gold produced a year-end spurt and recently broke through the mark of 1,900 US dollars per ounce.

    Indexed performance of gold in Swiss francs

    100 = 01.01.2023

    This graphic shows the indexed performance of gold in Swiss francs over the year. The gold price briefly rose to 2,050 US dollars at the start of the Ukraine conflict, but has since dropped below the mark of 1,800 US dollars per troy ounce once again. It then rallied again at the turn of the year.
    Source: Web Financial Group

    In light of the high inflation trend globally, many investors were disappointed by the performance of the gold price last year, as it fell almost continuously after a brief rally in spring. However, there was an abrupt change in trend in November, and the price per troy ounce rose from 1,625  US dollars to over 1,900 US dollars recently. As recent publications show, the Chinese central bank may have been a driving factor in this development. It bolstered its gold reserves by 32 tonnes in November alone.

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