As the latest data rolls into our macro models, Switzerland looks more and more attractive on a relative basis to other European economies…
This week’s economic data was bullish, on the margin. Unemployment increased by a paltry 1,200 job seekers in October according to SECO data released today, leaving the total national rate barely changed at 2.6%. On an absolute basis, that’s amongst the best unemployment levels in the world. On a more significantly negative note, state data indicates manufacturing contracted in October for the second consecutive month while exports declined for the first time in 4 years. On the GDP front, this is not a surprise. This is just one more piece of the new reality – a global slowdown.
Following the lead of central bankers around the globe, SNB yesterday made a surprise rate cut, lower their target by 50 basis points to 2%. Easy money will prove to be stimulative, in the end.
Although Swiss GDP is heavily dependent on financial services (the % driven by banks, brokers and insures at north of 25%), this concentration factor provides risk as well as potential reward. The preeminent institutions like UBS and CS face the prospect of continued write-downs as toxic assets work their way through the system, but the steepening yield curve should offset that as the gnomes of Zurich start to deploy the massive deposits at their disposal. Within the framework of our “New Reality” Investment Theme for 2009, the players best poised to win are those who have access to capital.
We are long Swiss equities via the EWL ETF and will continue to be until the relative math changes.
Keith McCullough & Andrew Barber