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Created on 24.05.2019

Market overview

Following the strong upturn since the start of the year, stock markets began to falter last month. Equities posted losses overall. Meanwhile, less risky investments such as government bonds moved higher. Gold and real estate funds also achieved price gains. The US dollar continued to perform strongly on the foreign exchange markets. The Japanese yen also rose by several percent owing to the uncertainty on the equity markets.

  • Most stock exchanges suffered substantial losses in recent weeks. These declines varied across regions. Emerging market equities fell by around 6%. In contrast, Swiss equities posted moderate gains. This meant that momentum decreased somewhat in most markets. However, it is still not negative.

    Indexed stock market performance in francs

    100 = 01.01.2019

    This graphic shows the price performance on the stock markets in Switzerland, worldwide and in emerging markets in francs. Following the correction towards the end of 2018, the stock markets performed strongly in the first four months of this year. The tide has now turned. Most markets fell by several percent within a few days.

    The strong upturn on the world’s equity markets, which has shaped events since the start of the year, came to a halt recently. The biggest losses last month were posted by emerging markets, followed by the UK and the eurozone. Switzerland, which recorded a slight rise, was an exception. Equities from industrialized nations have still achieved clear, double-digit price gains since the start of the year.

    Price/earnings ratio

    The graphic shows the price/earnings ratio (P/E) for the stock markets in Switzerland, worldwide and in emerging markets since 2000. From the financial crisis to the end of 2018, the P/Es for these three markets have risen with some ups and downs. The collapse in prices in the last few months of the past year saw the P/Es slip back to average levels. They now stand at just slightly higher than at the start of the year.

    The price/earnings ratios (P/Es) have also pulled back slightly owing to the losses on the equity markets. Swiss equities remain expensive in historical terms, while the valuations for the global equity market and emerging markets are close to their long-term average. 

    Momentum of individual markets

    In percent

    The graphic shows the momentum in various markets. Global uncertainty saw momentum decline compared to the previous month. Momentum fell particularly sharply in emerging markets. Momentum currently stands at around 2.5% for most markets.

    Momentum on the equity markets remains positive despite the recent losses. Only Japan and the emerging markets have a 10-day average below that of the last 240 days. The fact that there has been a relatively strong decline in momentum in emerging market equities explains why Asia – and many emerging markets which are key to the index – has been hit relatively hard by the recent correction.

  • Most bonds gained in value last month. Paper issued by debtors with higher credit ratings performed best. This means that yields remain at historically low levels and both government and corporate bonds are expensive.

    Indexed performance of 10-year government bonds in francs

    100 = 01.01.2019

    This graphic shows the indexed performance of 10-year government bonds in Swiss francs from Switzerland, the USA and Germany. They have risen more or less constantly for a year. This applies to US securities in particular. The relatively high yields in the USA have enabled greater price gains to be achieved than in Switzerland.

    Secure bonds have continued to rise since mid-April, offsetting the moderate downturn on the equity markets and underlining their importance to the portfolio. However, not all government bonds performed as strongly. Higher-risk debt instruments such as Italian paper recorded price losses.

    Trend in 10-year yields to maturity

    In percent

    The graphic shows the performance of long-term yields to maturity for Switzerland, the USA and Germany. They have been trending downwards for decades. Yields to maturity rose temporarily after the trend appeared to have bottomed out in mid-2016. But they fell again in recent months, which means they have now almost returned to 2016 levels.

    Yields to maturity remain extremely low in historical terms. This is a problem for long-term investors as it means bonds are relatively expensive. At the moment, higher yields are only available on higher-risk debt instruments or real estate. These more attractive returns nevertheless also entail the risk of stronger price fluctuations.

    Credit spreads on corporate bonds

    In percentage points

    This graphic shows the difference between duration-adjusted government and corporate bond yields in US dollars, euros and francs. These so-called risk premiums have been at low levels for a number of years. They rose temporarily on the back of market turbulence at the end of 2018, but have since fallen again.

    Risk premiums of corporate bonds have barely moved recently. They have fallen again in Switzerland and in the eurozone, but have increased slightly in the USA. The low level from a long-term perspective indicates that no recession is expected on the bond markets at the moment.

  • Real estate investments have trended sideways in recent weeks. Together with equities, they have recorded the biggest gains since the start of the year. The effective prices of real estate are falling in view of the increase in supply. Single-family homes are the exception.

    Indexed performance of Swiss real estate funds

    100 = 01.01.2019

    The graphic shows the indexed performance of Swiss real estate funds over the past year. The clear upward trend of real estate investments since the start of the year continued recently. While gains were low, funds were unaffected by the uncertainty on the stock markets. An increase of over 10% has been achieved since the start of the year.

    In contrast to the equity markets, the value of indirect Swiss real estate investments climbed slightly last month. This meant they continued their strong uptrend since the beginning of the year. Looking to the future, real estate funds should continue to benefit from the continued low yields to maturity on bonds. Investors are increasingly looking to replace them with higher-yielding investments.

    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 the properties contained in Swiss real estate funds. This premium has fallen slightly recently, but remains high in historical terms. Conversely, the yields to maturity of 10-year government bonds are currently very low.

    The prices of Swiss real estate funds have hardly moved in recent weeks. They currently stand at around 20% above the value of the properties they contain. This premium is reasonable compared to the yields to maturity of 10-year government bonds. This means that real estate funds are neither particularly expensive nor especially cheap. 

    Vacancy rate and real estate prices

    This graphic shows the vacancy rate of Swiss residential property and the price indices for single-family homes, rental properties and apartments. Both the vacancy rate and the price indices have been rising for a decade. Apartment and rental prices have nevertheless fallen again over recent years.

    The supply of property is outstripping demand in Switzerland. This is indicated by the vacancy rate which has continually risen for ten years, having an impact on prices. The price of both apartments and rental properties has fallen recently. Single-family homes are bucking this trend at the moment as they are less suitable for rent and, in turn, as investment property.

  • The dollar has been predominant on the currency markets in recent weeks. The value of the greenback rose against most other currencies. One exception was the Japanese yen, which also moved higher. Gold posted further moderate gains on the back of turbulence on the financial markets. It has recorded a solid increase of several percent since the start of the year.

    Currency pair Price PPP Neutral area Valuation
    Currency pair
    EUR/CHF
    Price
    1,13
    PPP
    1,18
    Neutral area
    1,10 – 1,26
    Valuation
    neutral
    Currency pair
    USD/CHF
    Price
    1,01
    PPP
    0,93
    Neutral area
    0,81 – 1,05
    Valuation
    neutral
    Currency pair
    GBP/CHF
    Price
    1,29
    PPP
    1,47
    Neutral area
    1,27 – 1,68
    Valuation
    neutral
    Currency pair
    JPY/CHF
    Price
    0,92
    PPP
    1,07
    Neutral area
    0,93 – 1,27
    Valuation
    Yen undervalued
    Currency pair
    SEK/CHF
    Price
    10,48
    PPP
    12,25
    Neutral area
    11,11 – 13,40
    Valuation
    Krona undervalued
    Currency pair
    NOK/CHF
    Price
    11,57
    PPP
    13,18
    Neutral area
    11,88– 14,47
    Valuation
    Krona undervalued
    Currency pair
    EUR/USD
    Price
    1,12
    PPP
    1,27
    Neutral area
    1,10 – 1,43
    Valuation
    neutral
    Currency pair
    USD/JPY
    Price
    109,52
    PPP
    86,36
    Neutral area
    71,19 – 101,53
    Valuation
    Yen undervalued
    Currency pair
    USD/CNY
    Price
    6,88
    PPP
    6,28
    Neutral area
    6,07 – 6,50
    Valuation
    Renmimbi undervalued

    The appreciation of the US dollar – which strengthened against almost all currencies by between 1% and 4% – was very evident again on the currency markets recently. Only the yen rose against the US currency. This reflects the defensive qualities of the Japanese currency, which emerge in turbulent times. 

    Adding the individual over- and undervaluations together for a currency indicates that the US dollar remains significantly overvalued. The euro has remained in neutral territory in terms of its fundamental value and the Swiss franc has trended close to its neutral value for years. In contrast, the yen remains significantly undervalued across a broad front. In historical terms, it is likely that there will be fewer over- and undervaluations over the course of time. As a result, the dollar’s value is likely to fall again over the long term. 

    Indexed performance of gold in francs

    100 = 01.01.2018

    This graphic shows the indexed performance of gold in Swiss francs. After a strong start to 2019 and a subsequent correction, we have seen an erratic sideways price trend recently. There was an increase again last month. A gain has also been achieved since the beginning of the year, both in francs and dollars.

    The gold price rose again in recent days. The slightly higher gold prices quoted are likely to reflect the financial market turbulence. Once again, the precious metal’s safe haven qualities have come to the fore during this period of uncertainty.

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