SWISS EQUITIES OUTLOOK IN OCTOBER 2010

SWISS EQUITIES OUTLOOK IN OCTOBER 2010

Swiss economy expanded 0.9 % in Q2 2010. Switzerland growth forecast for 2010 has been raised from 1.8 % to 2.7%. I anticipate that swiss economy marked slow down due to strong appreciation of swiss franc and the declining momentum of the global economy. The export of goods in the second quarter had significantly slower momentum than in first quarter due to slowing growth internationally coupled with appreciation of swiss franc. In addition to that business expectations among industrial companies particularly among companies with a strong export focus declined slightly but economic indicators for the domestic economy especially consumer sentiment remain positive. The swiss business environment is likely to remain choppy. The decline in investment yield will be key challenge for the industry.  I believe that there is no sudden economic collapse in the second half of the year but rather a gradual slow down.

SNB statement sound increasingly cautious that the possibility of deflation at the beginning of 2011. It maintains its expansionary monetary policy due to lower risk of inflation. It is leaving the target range for three months LIBOR unchanged at 0.00-0.75% and intends to keep the LIBOR within the lower part of the target range at 0.25%    

Let me conclude that modest growth should continue in the coming months but stock prices are unlikely to rise at the pace they have achieved in the last nine months. So equity valuations could come under significant pressure if growth disappoints or interest rate rise more than expected pointing to the risk of sudden correction in the equity market. As of now, valuations are favorable because of most of the indicators are still below the historical average. Swiss market does not appear to be materially overvalued compare to US. I put neutral in swiss equities.

My favorite stocks are:

Novartis                           55.70 CHF  

Richemont                         46.14 CHF  

Swatch                            359.80 CHF  

Swisscom                         397.00 CHF  

Syngenta                          246.80 CHF

An investment in knowledge always pays the good return in the future.