Geopolitics in Focus
The past year was marked by geopolitical tensions and conflicts. Nevertheless, volatility remained relatively low throughout the year. The SIX Swiss Exchange’s Volatility Index (VSMI) reached an annual high of 21.65 in the spring due to turbulence around Credit Suisse, staying below the highs of the last 5 years. The American Volatility Index VIX even achieved its lowest value since 2018. However, clear trends were missing in the stock market until just before the end of the year. Thus, the SMI closed the year in the green (+3.81%) only thanks to a spectacular year-end rally of +7.88%. The American S&P 500, buoyed by the year-end surge, achieved a return of +24.23%. The next 12 months will remain exciting at the stock market. In 2024, elections will be held in several major economies. Attention will particularly turn to the outcome of the US Presidential election at the end of the year, whose result will be crucial not only for the American people but also for the development of the stock markets.
Spring Cleaning in the Banking Sector
In the spring, rising interest rates and waning customer confidence globally shook banks. This sent the markets on a roller coaster ride. In March, the MSCI World Banks Industry Index lost 15.9% of its value within just three weeks (in local currencies). As a result, a spring cleaning occurred on the Swiss Financial Market. Shares of Credit Suisse can no longer be found in the Swiss Market Index (SMI). Switzerland’s former second-largest bank was integrated into UBS in a deal orchestrated by the Federal Council and the Swiss National Bank. A similar fate befell the three U.S. institutions which were listed in the S&P 500, Silicon Valley Bank, First Republic Bank, and Signature Bank. During this time, central banks in Switzerland and the USA had to temporarily increase their balance sheet totals after months of quantitative tightening to provide urgently needed liquidity. Despite the turmoil in the banking sector, the MSCI World Banks Industry Index achieved a positive annual performance of 14.5% by the end of the year (in local currencies). A repetition of the spring 2023 events seems unlikely, even though the Austrian Signa Holding recently fell victim to the rise in interest rates. After the inflation-related interest rate hikes of the last two years, the market expects interest rate cuts again in 2024. Combined with falling bond yields and rising corporate earnings, UBS analysts expect rising stock markets for 2024.
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Artificial Intelligence, or AI (in binary code 1000001 1001001), was the buzzword of the past year. In November 2022, ChatGPT, which generated the cover image of our LinkedIn post, became publicly accessible and amassed a total of 100 million users within three months. For comparison, Instagram took two and a half years to do so. Nvidia, which manufactures graphics processors and computer chips that form the basis for the enormous computing power of AI models, benefited from the incredible development in the AI sector. The stock value of the US company tripled last year, propelling Nvidia into the exclusive club of trillion-dollar companies, which besides two oil companies, consists only of technology firms. It seems that bits and bytes are the new liquid gold of our era. Therefore, it is not surprising when Bloomberg assesses a possible war in Taiwan as the biggest risk for the world economy. The small island state controls about 20% of the global semiconductor market. In the event of war, a collapse of local production would further fuel the global shortage of semiconductors. Artificial Intelligence has now also entered the investment field. AI models can analyze complex patterns in a short time and, for example, recognize market imperfections or provide data-based forecasts for different asset classes. They are not influenced by their own emotions and can thus, among other things, keep a cool head in turbulent market situations. The AI Outperformance Index by PLEXUS clearly shows that AI-based investment strategies can generate added value for investors. Last year, depending on the month, 25% to over 50% of the observed AI funds outperformed their benchmark, a rate rarely achieved by traditional investment strategies.
Made in Switzerland
Last year the German economy was the weak link of Europe with a GDP decline of 0.5%. This also affected Swiss exports to Germany, which fell by over 3% between January and November 2023 compared to the previous period. Compared to the beginning of the year, Swiss total exports showed a slight downward trend by the end of November. However, there is hope for 2024. As for the rest of Europe, the International Monetary Fund expects positive GDP growth for Germany in the coming year, and the Swiss State Secretariat for Economic Affairs SECO anticipates a recovery in Swiss exports – “Made in Switzerland” remains in demand, particularly in luxury goods.
After the slump in consumer sentiment caused by Corona and the Ukraine war, consumer sentiment in the US picked up again last year. The US Consumer Sentiment Index of the University of Michigan has been steadily climbing since its low point of 50 points in June 2022, reaching 69.7 points by the end of the year. The watch industry in Switzerland also benefited from the blossoming consumer sentiment, significantly increasing its exports from January to November 2023 compared to the previous period. This upward trend, however, has not yet been reflected in the stock prices of the two major Swiss luxury houses, Richemont and Swatch. The two SMI stocks lost 7.27% and 16.89% respectively compared to the Swiss benchmark index over the course of the year. However, Richemont surprised on January 18 with a strong quarterly result, causing the stock price to rise by over 10% on the same day. After a market growth of 8-10% for the past year, Bain and Altagamma expect slightly lower growth of 1-4% for the new year. In the long term, however, annual growth of 5-7% is expected. It remains to be seen which companies will be able to capitalize on this projected growth.
