LONDON: Signs of an impending retreat from buoyant Swiss stocks may signal the start of a new hunger for risk among investors.
Swiss equities have been a perfect middle ground for investors moving out of super-low-yield crisis-era havens such as gold, Swiss franc deposits and U.S. Treasuries, but reluctant to dive back into growth-driven, high-yielding securities.
Up 16 per cent year to date, Swiss stocks have beaten major European bourses, clocking up gains even while safe-haven gold tumbled 24 per cent and the riskier end of equities in emerging markets lost 9 per cent.
Switzerland's blue-chip SMI index has lagged over the past couple of months, however, eking out just 0.6 per cent gains since end-April against 4.3 per cent for Germany's DAX and 2.6 per cent for Britain's FTSE 100. Higher profits for Swiss banks UBS and Julius Baer helped lift the index on Monday.
But banks - which typically outperform a rising market - have a greater weighting in the FTSE, while the DAX has more stocks such as carmakers, which also outperform in a rally.
Switzerland's blue-chips are weighted more towards stocks seen as "defensive" because of the stable demand for their products, such as pharmaceuticals firms and food groups.
The Swiss franc's strength versus other currencies - despite a central bank cap on its exchange rate against the euro - may be helping drive investors towards rival markets such as the FTSE, which has been boosted by a weak pound.
"Switzerland is the most defensive (European) market, which explains its outperformance in volatile low growth times," said Old Mutual Global Investors fund manager Kevin Lilley.
"But with the broader economy set to improve, it is difficult to see it sustaining this performance relative to the UK and Germany."
GERMANY, UK LOOK BETTER BETS
Factors that attracted investors to Switzerland included cash-rich firms with steady earnings that gave a lot back through dividend payouts, such as food company NestleBSE -1.44 %, and pharmas Roche and Novartis.
While that largesse remains - all three have a forward dividend yield around 3.5 per cent - the market's "hunt for yield" in the face of low bond market returns has left regional peers looking more attractive on a valuation basis.
The FTSE 100 trades on a price to earnings (P/E) ratio of 13.6 while the DAX is on a P/E ratio of 13.5 - both cheaper than the Swiss SMI's P/E of 18.2. A desire to tap into that better growth outlook has already seen money leave Swiss equity funds for 11 straight weeks to the end of June, data from fund flow tracker firm EPFR showed.
And while some, such as Morgan Stanley, still favour Switzerland, further outflows are likely to follow. ING Investment Management senior equities strategist Patrick Moonen, said he was considering cutting Swiss equities to "underweight" from "neutral", while HED Capital chief Richard Edwards has also advised clients to sell any rallies in the SMI.
For those who choose to remain invested, the cost of buying protection against future price falls in the options market has increased over the last two months and now ranks among the most expensive in Europe.
Implied volatility on SMI equity options show readings of 20 per cent - higher than 17 per cent on the FTSE 100 after a gradual rise in the last two months. The higher the implied volatility, the more expensive the options.
indiatimes.com
Swiss equities have been a perfect middle ground for investors moving out of super-low-yield crisis-era havens such as gold, Swiss franc deposits and U.S. Treasuries, but reluctant to dive back into growth-driven, high-yielding securities.
Up 16 per cent year to date, Swiss stocks have beaten major European bourses, clocking up gains even while safe-haven gold tumbled 24 per cent and the riskier end of equities in emerging markets lost 9 per cent.
Switzerland's blue-chip SMI index has lagged over the past couple of months, however, eking out just 0.6 per cent gains since end-April against 4.3 per cent for Germany's DAX and 2.6 per cent for Britain's FTSE 100. Higher profits for Swiss banks UBS and Julius Baer helped lift the index on Monday.
But banks - which typically outperform a rising market - have a greater weighting in the FTSE, while the DAX has more stocks such as carmakers, which also outperform in a rally.
Switzerland's blue-chips are weighted more towards stocks seen as "defensive" because of the stable demand for their products, such as pharmaceuticals firms and food groups.
The Swiss franc's strength versus other currencies - despite a central bank cap on its exchange rate against the euro - may be helping drive investors towards rival markets such as the FTSE, which has been boosted by a weak pound.
"Switzerland is the most defensive (European) market, which explains its outperformance in volatile low growth times," said Old Mutual Global Investors fund manager Kevin Lilley.
"But with the broader economy set to improve, it is difficult to see it sustaining this performance relative to the UK and Germany."
GERMANY, UK LOOK BETTER BETS
Factors that attracted investors to Switzerland included cash-rich firms with steady earnings that gave a lot back through dividend payouts, such as food company NestleBSE -1.44 %, and pharmas Roche and Novartis.
While that largesse remains - all three have a forward dividend yield around 3.5 per cent - the market's "hunt for yield" in the face of low bond market returns has left regional peers looking more attractive on a valuation basis.
The FTSE 100 trades on a price to earnings (P/E) ratio of 13.6 while the DAX is on a P/E ratio of 13.5 - both cheaper than the Swiss SMI's P/E of 18.2. A desire to tap into that better growth outlook has already seen money leave Swiss equity funds for 11 straight weeks to the end of June, data from fund flow tracker firm EPFR showed.
And while some, such as Morgan Stanley, still favour Switzerland, further outflows are likely to follow. ING Investment Management senior equities strategist Patrick Moonen, said he was considering cutting Swiss equities to "underweight" from "neutral", while HED Capital chief Richard Edwards has also advised clients to sell any rallies in the SMI.
For those who choose to remain invested, the cost of buying protection against future price falls in the options market has increased over the last two months and now ranks among the most expensive in Europe.
Implied volatility on SMI equity options show readings of 20 per cent - higher than 17 per cent on the FTSE 100 after a gradual rise in the last two months. The higher the implied volatility, the more expensive the options.
indiatimes.com
No comments:
Post a Comment