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Finance head explains the highs of the bourse

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The head of the Swiss Finance Institute, Jean-Pierre Danthine, says that the record performance of the Swiss stock exchange (SWX) this week is hardly a surprise.

This content was published on September 29, 2006 - 08:59

Danthine told swissinfo that the Swiss economy was doing well and the financial players were all in a buoyant mood at the bourse.

On Wednesday the Swiss Market Index of top Swiss listed companies reached 8,413 points, beating the previous record eight years ago of 8,312 points and wiping out memories of the bursting of the internet bubble.

Some analysts are now predicting that the index will top the 10,000-point barrier in the coming months. But others say that the economic slowdown in the United States is not good news.

swissinfo: What has changed since the previous record at the bourse eight years ago?

Jean-Pierre Danthine: the first thing to note is that eight years have gone by and during that time the Swiss economy has grown. It generates more added value today.

It's normal that the companies behind this should also have a stock market value that's increased.

In terms of regulations, no major changes can explain the development of the ratings. New companies have appeared, companies have new ideas and there's a creation of value. The explanation is not in the regulations or the Swiss stock market rules.

swissinfo: Is the plunge that occurred after 1998, notably with the impact of the crisis in Russia and the bursting of the internet bubble, still possible today?

J.-P.D.: Of course! At the time of the internet bubble, there was an exuberance [according to former US Fed chief Alan Greenspan] which led to valuations that were not necessarily justified.

We should not rule out that the valuations considered unjustified at the time – and which provoked the crash – may be perfectly justified today. But we are profiting from a favourable environment in terms of economic growth and interest rates. But the economy and interest rates could well be different in a year's time with stock exchange valuations that are lower than now.

swissinfo: Why was the Swiss stock exchange the first big bourse to beat its record since the bursting of the internet bubble?

J.-P.D.: That's a difficult question. There's a strong possibility that the Swiss stock market progressed less in 1998. There is no reason why stock market bubbles should be identical in every country. Where less progress has been made it's easier to break the record.

It's also true that a certain number of Swiss companies are doing well. What's happening really is that the stock market is putting a [greater] value on those very businesses.

Switzerland is doing well and so is the bourse. In comparison, it is perhaps a little better than others. One country has to be the first.

swissinfo: But should we be happy that the Swiss bourse is reaching such levels?

J.-P.D.: The fact that the bourse is reaching such levels is a sign of the perception of people who are watching the economy. They are positive ["bullish"] about the situation of the Swiss economy and the prospects. So yes, we should be happy.

swissinfo: Aren't there also causes for concern?

J.-P.D.: There are always worries. Some worldwide imbalances are cause for concern. There's also the question whether Switzerland in international comparison is doing well for economic reasons or because a turning point has been reached that bodes well for the long term.

These questions have yet to be answered. You find first signs at the stock exchange but it's a valuation full of uncertainties. The bourse takes a look at the future and the future is very hard to foresee.

In other words, there is uncertainty and there are risks. We should be happy, but remain cautious, knowing that the markets can be wrong.

swissinfo-interview: Pierre-François Besson

Key facts

The Swiss Market Index is the main index of the Swiss Exchange (SWX).
It includes 27 (one fewer after September 29) of Switzerland's largest listed companies.
The securities contained in the SMI currently represent more than 90 % of the entire market capitalisation of all Swiss and Liechtenstein equities listed on the SWX Swiss Exchange
The SMI closed at 8,413 points on Wednesday (8,416.68 on Thursday).
The index has increased by 13 % in three months.
Its last record – 8,412 points – dates from July 21, 1998.

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Jean-Pierre Danthine

Born in Belgium in 1950, Danthine is a professor of economics at Lausanne University

His research interests include macroeconomics and finance, business cycle theory, asset pricing and the impact of real frictions on financial markets.

He has been director of the Swiss Finance Institute since September, 2005. This is a foundation created by the Swiss financial and banking community, the government and the universities of Zurich, Lausanne and Geneva.

In operation since the beginning of this year, the Swiss Finance Institute aims to advance research and develop quality training in the finance sector.

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