Better than expected at the beginning of the
year US economy supports equities

Investment Policy, October 2023

Better than expected at the beginning of the year US economy supports equities

Equities have outperformed bonds, cash and commodities in terms of total return so far this year. The reason for this is that the US economy has fared better than had originally been feared at the outset of the year. At the same time, the first generative artificial intelligence products are hitting the market. While European economies have also performed better than expected, the factors mentioned above have boosted the US equity markets to a greater extent than they have the European indices. However, the US dollar is less strong than it was at the start of 2023. This is lending support to the Swiss equity market’s total return in relative terms, as is the strength of the Swiss franc against the euro. Our focus on quality remains unaltered.

The risks of recession that were still dominating during the winter months have given way to an anticipation that the global economy is set for a soft landing. This is the message that comes across at least if we look at the pricing of riskier asset classes. The improved outlook can primarily be attributed to better-than-expected activity in the US economy. China’s economy, on the other hand, has been disappointing in recent months, with its production output standing at only about 60% of that in the US. In the previous decade, China has made up much ground in this regard. However, the world’s second most important economy has been unable to continue this trend in recent years in the way that China’s political leaders would have hoped. It is little wonder then that China is currently going to enormous lengths to dominate the electric car market. This has already led to global electric car production becoming enormously dependent on China, which now controls around 80% of the necessary raw materials and battery components. It should therefore come as no surprise if ever more Chinese-made electric cars find there way on to European roads, especially in Germany, with China’s global market share in the electric vehicle segment growing at the expense of the German economy.


The total return generated by the global equity markets during the year to date can be described as pleasing. Various factors have been responsible for this performance. Firstly, the global economy has thus far held up better than the market consensus and economists at banks and economic research institutes had feared. This more positive turn of events can primarily be attributed to the better-than-expected performance of the US economy, which is being supported by fairly robust consumption and investments made in connection with the US government’s Inflation Reduction Act. In contrast, the Chinese economy has fallen short of the hopes that many had held at the start of the year. While the European economy has not been able to keep pace with developments on the other side of the pond, it has performed better than the consensus expected at the outset of 2023. The Swiss economy is holding up better than the European economy so far. However, it is especially influenced by German economic developments. Another factor that has served to stimulate equities this year is the rollout of the first generative artificial intelligence products. This factor, together with the stronger performance of the US economy relative to other economies, has meant that US equities have been able to generate greater returns than their European counterparts in local currency terms. Against the backdrop of the weaker Chinese economy, it is no surprise that emerging market equities have disappointed.

The US and Swiss economies are performing better than the Eurozone economy.

Gérard Piasko, Chief Investment Officer


So far this year, corporate bonds have outperformed many government bonds in terms of their total return. This is related to the fact that the business results posted by Western companies, and especially those in the US, have mostly exceeded the market consensus. It is not only many economists, but also a large number of company analysts who have been positively surprised by the performance of the global economy and the corporate results posted during the year to date. This has boosted the trend towards falling credit spreads between corporate and government bonds. However, growing government debt in the US and the historically high US budget deficit are also exerting upward pressure on US government bonds and reducing corporate bond credit spreads relative to their government counterparts. Nevertheless, the strength of the trend towards a tightening of credit spreads is likely to be less pronounced over the coming months, as the accumulated gains, especially in the case of more speculative corporate bonds, could lead to profit-taking. Our focus on good quality should therefore also pay off in the bond space over the medium term.


As is well known, the Swiss franc is showing an unrivalled level of strength this year. Switzerland’s national currency has appreciated considerably against the US dollar, the euro, the renminbi and the Japanese yen. The strong Swiss franc is currently being supported by a much lower rate of inflation than seen in many other countries. Inflation in Switzerland is the lowest of any industrialised nation or OECD state. In addition to low inflation, the Swiss franc is also being helped by the repatriation trend. For many Swiss investors, investments in Swiss franc bonds have become more attractive. Capital that had previously been invested abroad has been moved back into Switzerland and into the Swiss franc. There are two reasons for this. On the one hand, US dollar hedging costs have risen and, on the other, Swiss franc bond yields are higher again and thus much more attractive than during the period of negative interest rates.


While all commodities have indeed been characterised by a higher level of volatility relative to other asset classes, and even equities, gold has been subject to much less marked fluctuations than oil over recent years. This is likely related to the fact that geopolitical tensions have not tended to ease, thus lending support to gold versus oil. The fluctuations seen in the gold price this year can also be attributed to demand-related factors. While economic performance and changes in demand have been more positive in the US and India, this has been less the case in the Eurozone and China. On the other hand, continued production cuts and the reduction of the available oil supply by Saudi Arabia and Russia benefited the oil price from the second quarter onwards and have done again just recently. Gold should, however, remain a priority as a diversifying element in the portfolio, especially in times of continued geopolitical uncertainty.

Gérard Piasko

Gérard Piasko

Gérard Piasko is Chief Investment Officer and head of the investment committee of private bank Maerki Baumann & Co. AG. Before he was for many years Chief Investment Officer of Julius Baer, Sal. Oppenheim and Deutsche Bank.

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Editorial deadline: 27 September 2023

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