The Zurich bourse has managed to recover from its collapse late in 2008, with its main index, which lost more than a third of its value, now at around 6,900 points.
While it is still far from its level of May 2007 when it registered 9,548 points, the Swiss Market Index has benefited from the country weathering the economic downturn better than most others.
The SMI, which tracks the evolution of Switzerland’s most important stocks, had not been in the best of health, declining slowly along with the economy from the middle of 2007.
The collapse of the Lehman Brothers bank in the United States speeded up the process, with the SMI losing 37 per cent of its value in just five months. Since then though, the situation has been looking up, thanks to a much improved economic environment over the past two quarters.
“Switzerland came out of recession in the middle of last year,” said Michel Juvet of the Bordier private bank.
“The bourse, which reflects the health of Switzerland’s economy and that of the globally active companies whose shares are traded there, followed that trend,” he added.
Those multinationals have also benefited from demand from Asian and developing markets over the past few months despite the strength of the Swiss franc, according to Juvet.
Low interest rates have also boosted investors’ interest in shares. At the same time companies have managed to cut production costs, lowering the break-even point, leading to a rapid growth of profits and making their shares even more desirable.
“Share prices could continue to climb to irrational levels, but that hasn’t been the case so far,” Juvet told swissinfo.ch.
Fernando Martins Da Silva, global strategist for the Vaud cantonal bank, agrees. “After the share market regained some of its strength last year, prices have been in step with profits since autumn,” he said.
But while there is no speculative bubble for the time being, Martins Da Silva reckons a turning point will be reached in early summer, with the share market suffering from some “turbulence.”
If a strong economic recovery is confirmed, interest rates will be under pressure. But if the economy grows at a slower pace, speculation on the share market can be expected to fall off.
Juvet sees another problem on the horizon: the Greek financial crisis, temporarily under control.
“Shares could be less attractive if the implementation of budgetary programmes in Greece, Spain and Italy is not satisfactory,” he warned. “That would affect the Swiss stock market as it would in other countries.”
Since January, the Swiss bourse has outperformed other stock markets, a situation Juvet says he is at a loss to explain. However, Martins Da Silva says the increased value of the dollar and the safe haven of Swiss shares have been attracting investors.
Threats against Swiss banking secrecy, new double taxation accords with other countries and Switzerland’s ongoing problems with Libya have had no measurable impact on the market.
“There were concerns that foreign clients would pull out of Switzerland and weaken the franc, but that’s not the case so far,” admitted Juvet. “Stability and our safe haven status still have a bigger impact.”
Business as usual?
However no one is saying it is back to business as usual at the stock exchange. “Turnover fell 40 per cent in 2009 compared with the previous year,” said Swiss Exchange spokesman Werner Vogt.
Two reasons help explain this: panic sales in 2008 and the loss of Lehman Brothers, one of the exchange’s best clients.
No one is comparing the situation though to what happened after the internet bubble burst. For two years, in 2001 and 2002, stock markets suffered as values dropped.
Investors today are wary after getting their fingers burnt by the financial crisis and falling profits in 2007 and 2008. But their concerns revolve around the use of certain financial instruments rather than the behaviour of investors themselves.
“There is a certain optimism among investors now, but there is scepticism about how well the economy will do in 2011,” Martins Da Silva told swissinfo.ch. “You can see it in most investors’ portfolios, where shares don’t dominate.”
Juvet also agrees that there is money still available. “There are still liquidities placed on low-risk assets with low yields that could be moved.”
Pierre-François Besson, swissinfo.ch (Translated from French by Scott Capper)
Origins: stock trades appeared in northern Italy in the 13th century, but the first real stock exchange was created in Amsterdam with trading in shares of the Dutch East India Company four centuries later.
Switzerland: the Swiss stock exchange is a century and a half old. Based in Zurich, it is the successor of seven exchanges created between 1850 and 1905, reaching its current form after the merger of Geneva, Basel and Zurich bourses.
Business: traders at the Swiss exchange represent banks authorised by Switzerland’s financial watchdog. Private investors have no direct access.
SMI: the Swiss Market Index is comprised of the 20 largest equities at the bourse and represents about 85 % of the total capitalisation of the Swiss equity market.