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Small investors urged to stay wary of markets

The blue chip Swiss Market Index has fallen 16 per cent since the beginning of the year

(Keystone Archive)

Analysts are warning small investors to remain cautious in the current economic climate, saying recent volatility in the equity markets is far from over.

The value of many people's portfolios plummeted in the past year, and small investors were often disproportionately affected because they hang on longer than large institutions.

The blue chip Swiss Market Index has fallen 16 per cent since the beginning of the year, and the broader Swiss Performance Index has dropped by a similar amount. Major global markets have performed badly over the same period amid continuing fears of a recession in the United States. Switzerland's market decline is considered average.

That is a long way from the optimism that reigned last year when the Swiss market was the best performing in Europe and traders anticipated the SMI breaking its record of 8489 points set three years ago.

Now, the blue chip index languishes below the 7000 level and analysts see little prospect of improvement any time soon.

The year has seen big losers among companies whose share price soared not so long ago.

"Generally speaking, the major decliners are those that were unduly inflated in the bubble of 2000," says Christian Hefti, equity strategist at the country's biggest bank, UBS. "Those include many firms in the hi-tech and software areas and some in the bio-tech sector."

Hefti named Thinktools, Distefora, ESEC, Jomed and Actelion as some whose prices have dropped steeply.

Other companies, however, have managed to avoid the hi-tech stock massacre. Hefti says shares in the computer accessories company Logitech have stood up well because it makes basic products that sell for under SFr200.

Some upswing is possible for SEZ, which makes equipment for semi-conductor manufacturers, Hefti observes.

But, in general, analysts foresee further volatility in equity markets and they advise small investors to consider their positions carefully.

"Old theory and experience has it that you should only invest money that you can afford to lose," says Hefti. "If you fear that you have invested money in a company that isn't 100 per cent sound then you might be well advised to get out and look at bonds as an alternative."

For those committed to maintaining a share portfolio, Hefti advises looking at old, established companies like Nestlé. The food giant has seen its share price decline a little this year, but it has remained relatively stable.

And what of Swissair? Its share price has roared back since the group's chairman, Mario Corti, struck a deal with the Belgian government over Sabena.

But it had a long way to return and investors should still be cautious, according to Hefti.

"There are still ample places where Mr Corti has to fight fire. His priority will be to cut costs from Swissair and Crossair and in an economically unfavourable climate it will be very tough."


By Michael Hollingdale


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