Stock markets hope for better 2002

It's likely to be another difficult year for the Swiss stock exchange swissinfo.ch

Investors around the world are hoping for a better return in 2002 after seeing stock markets plunge last year. Swiss blue chips were no exception and the SMI index fell 20 per cent over the year.

The Swiss Market Index, comprising of 27 of the country’s foremost companies, performed somewhat worse than the American market but in line with most other European markets.

New York’s Dow Jones Industrials ended the year down seven per cent. In Europe, London’s FTSE suffered a decline of 16 per cent, with the Frankfurt Dax down 20 per cent and the CAC 40 in Paris down 22 per cent.

Just a couple of weeks into the New Year, the prevailing mood on the Swiss Exchange remains uncertain. The SMI has been hovering around the 6400 mark since it reopened for business – at the end of 2001 it closed at 6417.

Defensive stocks

But if the SMI’s level has remained relatively steady there has been some indication of a shift away from defensive stocks back into the battered technology sector.

“This is in anticipation of stronger growth in 2002 from a gradual macro-economic recovery,” says Christian Hefti from UBS Warburg.

“Some expect the recovery to come as early as the first quarter but our view is that by mid-year we will see a modest recovery in the US which should stop the decline in share values.”

Companies such as Unaxis and Kudelski are now seeing their share values heading back up. Even ABB, which suffered a 60 per cent decline in its share value last year, has rebounded around 10 per cent in the first couple of weeks’ trading.

ABB saga

“ABB is very interesting.” says Hefti, “A lot that happened there last year was based on speculation but what happened in the last few weeks of 2001 was that we’ve seen the appointment of a new CEO and CFO and investors seem willing to be a little more forward looking.”

Hefti adds that much of ABB’s troubles have stemmed from concerns about asbestos-related lawsuits in the United States.

Those worries have also been somewhat assuaged by a new US state law which would limit ABB’s liability through its US-based Combustion Engineering unit.

But the cautious mood means that tech gains have often been made through funds being switched out of more defensive stocks.

“We are pretty much at the same point as last year when everybody thought that defensive stocks had ran ahead themselves and are too expensive,” says Hefti.

“But if you look at the economic uncertainty then you can see that these guys have delivered value and have delivered a moderate amount of growth.”

Balancing the portfolio

Hefti says it’s inevitable that investors will go back to tech stocks to re-balance their portfolios but he says defensive stocks such as Nestlé will continue to hold their own.

Telecom stocks have also been out of fashion among European investors though Switzerland’s biggest player, Swisscom, has largely out-performed the rest in recent times.

“Swisscom is actually counter-cyclical,” says Hefti, “and if European telecom companies begin to out perform then Swisscom will tend to under perform because it has a very strong balance sheet and a high dividend yield so it will find it hard to find targets for its cash.”

But he adds that investors are bound to remain sceptical about the European telecommunications sector because most companies are saddled with huge debts following the auction of the third generation mobile telephone licences.

By Michael Hollingdale