CS expects market rally to continue

Credit Suisse analysts like the potential of new cancer therapies Keystone

Switzerland’s second-largest bank, Credit Suisse, says it believes investors are preparing for favourable growth in the first quarter of 2005.

This should lead to a strengthening of the stock market and the United States dollar, as well as to a weakening of bond prices, the bank reported on Tuesday.

It warned, however, that there could be growing concerns in the second quarter about inflation and higher US prime rates.

It is therefore advising long-term investors to switch to low-risk segments.

The bank’s experts commented that global economic growth had been slowing since spring 2004, reflecting higher oil prices, the fading stimulus from US tax cuts, a slight cooling of the Chinese economy and the initial effects of rising central bank interest rates in some countries.

However, latest data indicate that this slowdown should give way to a re-acceleration during the second half of this year. Accordingly, experts at Credit Suisse believe that prospects are looking up for investors.

In the currency sector, analysts expect the US dollar to continue its rebound during the first quarter. They predict its value should reach around $1.25 against the euro.

In the second quarter, this rebound is likely to taper off and give way to a slightly weaker dollar. Although this year it is not expected to drop beneath the low ($1.36 to the euro) witnessed a few weeks ago.

Against the backdrop of a slowdown in economic growth in Switzerland in the first half of 2005, the Swiss National Bank (SNB) has signaled that its interest-rate strategy is likely to be dominated by the need to avoid rapid appreciation of the Swiss franc relative to the euro.

Cautious strategy

The CS experts comment that the SNB is likely to continue to pursue a cautious strategy until the beginning of 2006, but will aim for a three-month key interest rate of about 1.3 per cent.

Equity strategists at Credit Suisse see buyers continuing to drive the stock market into the first quarter of 2005 and perhaps early into the second quarter as well, with Europe and Japan offering the most potential.

But they caution that markets are likely to peak in the spring of this year and a subsequent correction could extend into the third quarter.

The stocks CS analysts recommend include selected European insurers, potential Chinese global brand leaders of the future. They have also found some appeal in alternative energies.

Cancer therapies

But they make particular mention of the pharmaceutical sector and promising cancer therapies.

The analysts say that although cures for cancers are still distant on the horizon, the latest therapies have brought real progress.

They feel that the pharmaceutical companies involved in these therapies should reap “considerable” rewards from them.

“The recent introduction of new cancer treatements could be the most important wave of innovation in the pharmaceutical industry this decade,” the communiqué said.

However, in the opinion of the Credit Suisse experts, the market consensus remains cautious in forecasting sales in this sector.

And they add that historically, the financial markets have tended to underestimate the sales potential of innovative classes of medicines.

swissinfo

In brief

Credit Suisse is looking forward to a strengthening of the stock market and the United States dollar in the first quarter.

CS analysts say there should also be a weakening of bond prices.

They feel there could be concerns about inflation in the second quarter, as well as an anticipation of higher rates in the US.