Market overview: financial markets remain optimistic

Uncertainty on the financial markets has risen slightly and minor corrections took place on some stock markets. But, overall, the financial markets remain optimistic. Gold and Swiss real estate funds are suffering losses.

  • The announcement by central banks of plans to scale back bond-buying schemes has had little impact on the bond markets so far. However, higher-than-expected inflation in the euro zone has seen interest rates rise moderately in Europe.

    Indexed performance of government bonds in Swiss francs

    100 = 01.01.2021

    This graphic shows the performance of government bonds from Switzerland, the USA and Germany in Swiss francs. The improved economic outlook at the start of the year led to a sell-off on the bond markets. The value of US bonds has since climbed by 2 percent. By contrast, Swiss and German securities are in negative territory by just under 2 and 4 percent respectively.
    Source: SIX, Bloomberg Barclays

    The Delta variant’s impact on the global economy has been limited and the economic outlook remains bright. However, demand for secure government bonds is still strong. US securities remained at the prior month’s level and barely reacted to the debate about scaling down the US Federal Reserve’s bond-buying programme. European securities saw moderate losses. Swiss government bonds have been in negative territory by just under 4 percent since the start of the year as have their German counterparts by just over 1.5 percent.

    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. The trend briefly reversed in the first half of 2021, and interest rates fell. US 10-year yields to maturity currently stand at 1.3 percent, while Swiss and German yields to maturity come in at -0.3 percent.
    Source: SIX, Bloomberg Barclays

    Yields to maturity on government bonds have been falling again worldwide since the spring after almost reaching a record-high at the start of the year. European interest rates in particular climbed again slightly last month. This is likely to be due to much higher-than-expected eurozone inflation of 3 percent in August. The yield to maturity on 10-year German securities now stands at just under -0.3 percent again, while that on their Swiss counterparts is slightly higher. Yields to maturity on 10-year US bonds have trended sideways, at around 1.3 percent.

    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 credit spreads rose sharply in March 2020. This meant that higher-risk debtors had to pay more interest than secure government issuers when borrowing. Due to the economic recovery, the credit spreads that are being demanded have plummeted sharply again and have now returned to below pre-crisis levels.
    Source: Bloomberg Barclays

    The buoyant mood on the financial markets saw further demand for higher-risk investments last month. This means investors are differentiating less between higher-risk corporate bonds and secure government bonds, which is illustrated by the spread being demanded on the market. The spread on US corporate bonds fell further, reaching 0.9 percent at the end of August. This brings US credit spreads into line with their European counterparts. This spread is much lower for Swiss corporate bonds, at 0.5 percent.

  • The upward trend of recent weeks on the global stock markets has been interrupted and they have undergone a slight correction. Japanese equities emerged as the big winners.

    Indexed stock market performance in Swiss francs

    100 = 01.01.2021

    This graphic shows the performance of the stock markets in Switzerland, worldwide and in emerging markets in Swiss francs over the past 12 months. There was a phenomenal recovery rally after the huge sell-off in spring 2020. Both the US and Swiss stock exchanges have now not only reached but also actually exceeded their pre-crisis levels.
    Source: SIX, MSCI

    The virtually unchecked upward trend we had seen on the global equity markets slowed down at the end of summer. There have also been minor corrections over the past month. These included Brazilian equities, which fell by 8 percent, and South Korean equities, down by 5 percent. The outlier on the upside was the Japanese equity market, climbing by almost 8 percent since Prime Minister Suga announced his resignation. Investors are anticipating that his successor will pursue a more expansive economic policy.

    Momentum of individual markets

    In percent

    The graphic shows the momentum of 17 key equity markets worldwide. Momentum compares the latest data with the average figures from the past six months. The sense of relief on global stock markets over recent months is also reflected in the positive momentum of the individual markets despite the recent minor corrections. India, Japan and the Netherlands are currently leading the way.
    Source: MSCI

    After the phenomenal recovery rally during the first half-year, there is now a slowdown in recovery growth worldwide. Momentum on the equity markets has weakened accordingly, but predominantly remains in positive territory. Indian equities displayed the greatest momentum last month. India had been hit by a second, severe wave of coronavirus recently. But the worst now seems to be over, boosting equity prices. Chinese equities have struggled recently. Yet, momentum now appears to have shifted after the publication of the 5-year plan on the “rule of law” despite moderate economic news.

    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 ratio declined sharply in all three equity markets after the sell-off in March 2020. However, it benefited from rising prices once again during the recovery rally. P/E ratios have fallen worldwide since August. Swiss securities followed suit last month with slightly lower valuations.
    Source: SIX, MSCI

    In the wake of the post-coronavirus recovery, companies worldwide posted higher profits again. Brazil achieved the highest earnings growth recently, up by over 30 percent quarter-on-quarter. But earnings were once again positive on the Swiss market, too. This also impacted on equity valuations measured by their price/earnings ratio (P/E ratio). The P/E ratio for the Swiss equity market currently stands at 23, which is in line with the global average. The valuations of emerging market equities are now even more attractive with a P/E ratio of 16.

  • Swiss real estate funds experienced a slight correction at the end of summer. Given the low interest rates, valuations are still very high.

    Indexed performance of Swiss real estate funds

    100 = 01.01.2021

    The graphic shows the indexed average performance of listed Swiss real estate funds over the past twelve months. After recovering from the slump in March, they then trended sideways for weeks. They enjoyed a real boom at the end of the year, yielding a return of around 10 percent for the year. Demand continued to be strong this year. The price gain currently stands at over 5 percent.
    Source: SIX

    Demand for Swiss real estate funds remained high over the summer, with prices trending sideways at a record-high level. Momentum slowed in early September and prices fell by almost 2 percent. This was overdue given the record-high valuations. The increase for the year to date is still 6 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. This premium skyrocketed last year and reached new all-time highs in February, before plummeting in March 2020. After the Swiss real estate market recovered to its year-opening level, premiums have risen sharply again since the start of the year, temporarily hitting record levels of over 50.
    Source: SIX

    In the wake of the price correction on indexed Swiss real estate investments, premiums also fell slightly again last month. They had reached the 50 mark for the first time in August. Never before had investors been willing to pay such a high premium on the value of the properties contained in the funds. At the same time, the yield to maturity on 10-year Swiss government bonds rose to just under -0.2 percent. However, the overvaluation measured by interest rates was still down slightly, overall, from its recent record-highs.

    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 rental prices and the real estate prices of apartments have been on a downward trend over the past five years, vacancy rates are continually rising. The economic difficulties caused by the coronavirus crisis have seen a further increase in vacancies. Rental apartments have been particularly severely hit. The prices of single-family homes are currently rising further.
    Source: SNB, SFSO

    It isn’t just the prices of Swiss real estate that have constantly risen over the past 20 years. The number of vacant properties has also increased every year since 2009. The share of vacant properties on the Swiss real estate market climbed from 0.9 percent to over 1.7 percent during this period. On 1 June 2021, data from the Swiss Federal Statistical Office indicated a fall in the vacancy rate for the first time since, dropping to 1.5 percent. Besides the high demand for living space, the decline in construction work also helps explain this development.

  • Currencies

    There was less movement on the currency markets last month. Some commodity currencies strengthened again. Due to the increased inflation difference, the value of the Swiss franc fell sharply, measured by purchasing power parity.

    Currency pairPricePPPNeutral rangeValuation
    Currency pair
    EUR/CHF
    Price
    1.09
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.10
    Neutral range Range of historically normal fluctuations.
    1.02 – 1.17
    Valuation
    Euro neutral
    Currency pair
    USD/CHF
    Price
    0.93
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    0.84
    Neutral range Range of historically normal fluctuations.
    0.74 – 0.94
    Valuation
    USD neutral
    Currency pair
    GBP/CHF
    Price
    1.28
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.39
    Neutral range Range of historically normal fluctuations.
    1.20 – 1.58
    Valuation
    Pound sterling neutral
    Currency pair
    JPY/CHF
    Price
    0.84
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.02
    Neutral range Range of historically normal fluctuations.
    0.86 – 1.18
    Valuation
    Yen undervalued
    Currency pair
    SEK/CHF
    Price
    10.76
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    11.40
    Neutral range Range of historically normal fluctuations.
    10.29 – 12.50
    Valuation
    Krona neutral
    Currency pair
    NOK/CHF
    Price
    10.73
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    12.15
    Neutral range Range of historically normal fluctuations.
    10.85 – 13.46
    Valuation
    Krone undervalued
    Currency pair
    EUR/USD
    Price
    1.18
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    1.31
    Neutral range Range of historically normal fluctuations.
    1.14 – 1.48
    Valuation
    Euro neutral
    Currency pair
    USD/JPY
    Price
    109.72
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    82.14
    Neutral range Range of historically normal fluctuations.
    67.28 – 96.99
    Valuation
    Yen undervalued
    Currency pair
    USD/CNY
    Price
    6.46
    PPP Purchasing power parity. This measurement determines an exchange rate based on relative price performance.
    6.24
    Neutral range Range of historically normal fluctuations.
    5.99 – 6.48
    Valuation
    Renminbi neutral

    Source: Web Financial Group

    There was little movement on the international currency markets last month. After falling further last month, commodity currencies strengthened again recently – at least in some cases. The Norwegian krone achieved the strongest gains, rising 3 percent against the Swiss franc, followed by the Swedish krone, which was up 1 percent. The Canadian and Australian dollars both recorded slight losses again. With the uptick in inflation in the euro zone, the Swiss franc is now valued fairly against the euro once more, based on purchasing power parity.

    Gold

    After recovering from its flash crash in early August, the gold price per troy ounce again slipped well below the USD 1,800-mark recently.

    Indexed performance of gold in Swiss francs

    100 = 01.01.2021

    This graphic shows the indexed performance of gold in Swiss francs over the year. Owing to greater uncertainty on the market over the spread of coronavirus, there was strong demand for gold as a safe haven. However, after hitting a record high in August 2020, the price per troy ounce declined. Demand for gold has risen again since April. The price per troy ounce is currently below USD 1,800 again.
    Source: Web Financial Group

    The flash crash in early August saw the gold price per troy ounce drop by USD 100 to just under USD 1,730. This lost ground was recouped over the following weeks, but gold has yet to exceed the USD 1,800 mark on a sustained basis. Prices fell well below this level again recently. Persistently high consumer price inflation in the USA – which stood at 5.3 percent in August – has not yet resulted in increased demand for gold.

This page has an average rating of %r out of 5 stars based on a total of %t ratings
You can rate this page from one to five stars. Five stars is the best rating.
Thank you for your rating
Rate this article