IMPRINT Editor: Bank CIC (Switzerland) Ltd., Marketing and communication, Marktplatz 11–13, P.O. Box 216 4001 Basle, Switzerland, T 0800 242 124 Authors: John James Bayer (jb), Jürg Bützer (jub), Luca Carrozzo (cal), Sebastian Comment (cos), Mario Geniale (mge), Christian Meier (mch), Olivia Stählin (ost) Editorial deadline: 06.03.2014
DEAR READER On the edge of the precipice? It was on the shoulders of the emerging markets that for several years the hopes for future growth in the developed countries rested. The familiar acronym BRICS stands for the five leading emerging market economies (Brazil, Russia, India, China and South Africa). And these countries did indeed post impressive growth rates. Increasing foreign investments and the extremely relaxed interest rate policy of the US Fed further boosted this development. However, this now seems to have changed. What are the reasons for this? The US economy has stabilised. The US Fed has therefore started to exit its expansive monetary policy. In an initial reaction, institutional investors have cut back their investments in emerging markets, thereby putting the currencies there under selling pressure. The increasing affluence in the emerging markets has triggered a sharp rise in both consumption and imports there. Imports have exceeded exports, which has ultimately resulted in a negative balance of payments and consequently an outflow of capital. Social tensions are rising due to corruption and the unequal distribution of wealth. In addition, the easy granting of credit in some real estate markets has caused massive price hikes, which could lead to problems in the banking system if a correction occurs. We therefore recently disposed of our remaining emerging market equity holdings. We will wait and see how things develop before thinking about buying again.
Mario Geniale, Chief Investment Officer
0 2 / 2 0 1 4 QUA RTER LY M A R KE T OUTLO OK
Economic perspectives Slowly but surely, things are looking up. Thanks especially to the ultraexpansive monetary and economic policies of the leading central banks, most of the harmful legacies of the financial crisis have been dealt with. Optimism is gaining ground. According to the World Bank, the outlook for the global economy – supported by the positive economic activity in the developed countries – is good. For the current year and 2015, GDP growth of 3.2% and 3.4% respectively is predicted. The G-20 finance ministers are also taking the same line with their optimistic forecasts. Politicians aim to add impetus to global economic development with their ambitious reforms. Global GDP growth is to rise by an additional 2% within five years. The recipe for achieving this is simple – at least on paper: more private sector investment, more competition and therefore less unemployment. This orchestrated growth offensive is desperately needed, especially in view of the continually growing army of unemployed. Youth unemployment - specifically in Europe – is worryingly high. Almost one quarter of young people in Europe are out of work. The “lost generation” represents a threat to social peace that should not be underestimated and is a breeding ground for nationalist tendencies.
Growth – what else? Despite the general (forced) optimism, the World Bank and financial policymakers also detect global risks. A number of emerging markets face political and economic pressures. Alongside social unrest, the main factor is a massive outflow of capital which has led to currency turbulence. This can also partly be attributed to the Fed’s first steps in exiting its ultra-expansive monetary policy, commonly referred to as “tapering”. (jub)
us r low Fol witte IC T C e n o qu an B @
“As goes January, so goes the year” According to an American trading proverb, “As goes January, so goes the year”. January 2014 was not to every investor’s taste and the present currency crisis in several emerging markets is hindering the continuing positive performance of the stock markets. Does this mean that 2014 is set to be a year of volatility? The fact is that future market performance depends to a great extent on the impetus provided by the central banks. No adage can guard against these circumstances. (mch)
SMI SWISS EQUITIES Compared with other large markets, the Swiss stock market got off to a sound 130 125 start to the new year. At the end of February, Switzerland’s most important in- 120 dex (the SMI) breached the 8,500-point mark, thus sending it to its highest level 115 110 in more than six years. Although Switzerland is geographically distant from the 105 regions that are strongly afflicted by currency crises at present, the problems 100 facing the emerging markets are not to be underestimated. Should the cur- 95 90 rency deterioration continue, Swiss companies with a strong export bias will feel 85 the full force of the negative impact. For the time being, we are seeking to avoid 80 03 04 companies that mostly conduct foreign trade with the southern hemisphere. 2013 We prefer broadly diversified companies such as Roche, Novartis or Zurich. (mch) SMI
Euro Stoxx 50 EUROPEAN EQUITIES The eurozone economy has returned to growth, even in Italy and Spain. It 120 therefore comes as no surprise that the stock market rally is continuing mainly 115 in the peripheral states. Investors remain in a spending mood despite the fact 110 that the aggregate economic data barely glosses over the old weak points, 105 such as sovereign debt, bureaucracy and unemployment, of many EU members. 100 Winter storms in the form of currency turbulence in the emerging markets, 95 political unrest in the Ukraine and the repeated “political realignment” in Italy only briefly hit the stock markets. Investors continue to “surf” on the ECB’s on- 90 85 going “wave of liquidity” under Mario Draghi. Following the boom lasting 03 04 05 almost two years, European equities are no longer a bargain buy. Neverthe2013 less, the general (monetary) conditions still speak in favour of equities. We do Euro Stoxx not share the euphoria quite so wholeheartedly and are backing defensive multinationals such as Allianz (insurance), Royal Dutch (energy) and Sanofi (pharma). (jub) S&P 100 US EQUITIES 135 Although the S&P 500 has been hitting new all-time highs, the question 130 arises as to how long this boom is going to last. Despite known problems such 125 as the record level of debt and the sinking participation rate on the US labour 120 market, the American economy still has a number of trumps up its sleeve: 115 110 increasingly cheap energy, a flexible labour market, innovative strength and 105 a weak US dollar. While valuations have certainly started rising on the back 100 95 on mounting share prices, the upside potential does not appear to have 90 been completely exhausted just yet. The advantages referred to above are 85 03 04 05 continuing to provide companies with positive momentum. Firms such as 2013 General Electric, Baker Hughes and JPMorgan are among those benefiting. (jb) S&P 100
01 02 03 2014 Zurich Insurance
Royal Dutch Shell
01 02 2014 Sanofi
01 02 2014 Baker Hughes Inc.
01 02 2014
10-year CHF benchmark interest rate BONDS At the start of the year it looked as if bonds would come under pressure in 1.80 1.70 the first quarter. Potential reasons for a bear market were the Fed’s tapering, 1.60 the rebound in growth in the developed countries and the quest by inves- 1.50 tors for greater returns. But things worked out differently. Emerging market 1.40 turbulence prompted increased risk aversion. In addition, low inflation in 1.30 1.20 the eurozone and Switzerland put further pressure on interest rates. We 1.10 expect the central banks to continue pursuing their low interest policy. In the 1.00 short term, we assume that the 10-year CHF benchmark interest rate will drop 0.90 towards 1.20%, with high-grade bonds with a longer duration particularly 03 04 05 06 07 08 09 10 2013 benefiting from this. (cal)
Perspectives 02/2014 Bank CIC (Switzerland) Ltd.
The Column with Sebastian Comment, Head of Marketing
Bitten by the coin: Bitcoin – a self-experiment DEAR READER had to die for Bitcoin to thrive.” As it happens, most platforms continue to operate. Someone in Germany is offering 0.7 bitcoins at the price of EUR 434.45/btc. I click on “buy” and immediately receive the seller’s banking details, including his real name. It’s easy to look him up on Google. It somehow makes sense that the Bitcoin seller is exploring the The value of a bitcoin rose dramatically in topics of money laundering and gambling the last year from just under EUR 10 to its at university. Should that give me cause interim high of EUR 1 000. However, there for alarm?
As the number of bitcoins in circulation increases, so too does the complexity of the calculations, while the compensation in bitcoins is falling. This means that fewer and fewer bitcoins will be introduced to the system before the ceiling of 21 million is reached. Experts do not expect this to happen until 2130 at the earliest.
When buying bitcoins, you invest in a virtual currency – you could almost say in a string of zeros and ones. Bitcoin is anarchic: it functions without state or institutional authority. At the core of the currency is a complex algorithm with multiple encryption which is considered in expert circles to be resistant to forgery. In my opinion, the truly inspired aspect of Bitcoin is the way the money supply is managed. It’s important to realise that the total supply is capped in the code at 21 million units. Currently there are around 12 million bitcoins in circulation. Not unlike the deposits of a certain precious metal, bitcoins are finite in quantity. At the same time, prospecting or mining costs are increasing. The Bitcoin equivalent of mining costs is computing power. Theoretically, anyone with their own hardware can take part in this “mining”. The hardware performs cryptographic calculations that are necessary to verify existing Bitcoin transactions. As a reward for the computing power made available to the system, users receive bitcoins.
practically overnight. But this is one of the main points of criticism. The fact that bitcoins are based on expectations of an increase in value makes them more the object of speculation than a medium of exchange.
I read in the press that “the Bitcoin bubble is bursting”. Up to 350 million US dollars worth has been lost. High time to conduct an experiment of my own. I have decided not just to read about Bitcoin, but to experience it for myself. Some enlightenment is required.
is not just one price but several, depending on the trading exchange. The principle is simple: Bitcoin is a peer-to-peer network and thus traded from computer to computer. Cash flows are hand-led directly by the parties involved. While the euros are transferred directly to the seller’s conventional bank account, the bitcoins stay on the platform, known as a “wallet”. The platform therefore also exercises a custody function. Responsibility for securing these wallet deposits lies with the platform, which means the risk varies accordingly. So I go ahead and register at bitcoin.de. It’s easily done and all goes smoothly with various verifications (text message, e-mail, banking details etc.). Mt. Gox, the dominant bitcoin exchange in recent years, declared bankruptcy at the end of February after customers had for some time been experiencing massive delays when trying to withdraw funds from their Bitcoin accounts. Yet there were no major shockwaves. Former Netscape founder and major investor Marc Andreessen twittered: “Mt. Gox
Bitcoin is a concept geared towards deflation, making the early prospectors millionaires
So what are we left with? Bitcoin is safe, but the trading exchanges are not. Bitcoin shows what is possible and what is to come. However, it is only a matter of time before states and institutions will see themselves forced also to regulate this area (just think of money laundering). Whether Bitcoin will outlive this phase is of secondary importance, because if it doesn’t we can be sure that the next Bitcoin will arrive. In the meantime I am the proud owner of 0.693 bitcoins. In reality I own a 34-digit code made up of letters and numbers. That’s something I will just have to get used to.
This column reflects the personal views of the author. Sebastian Comment is responsible for marketing and communication at Banque CIC (Suisse). Mr Comment has a degree in business administration and a masters in corporate communications.
Perspectives 02/2014 Bank CIC (Switzerland) Ltd.
Overview of topical investment themes
CIC CH-High Yields Bond “CHF Primus”: Alternatives to equities: 5% perforIn search of returns… mance target with structured products For bond investors, the search for returns is proving rather demanding. The CIC CH-High Yields Bond “CHF Primus” fund offers investors the opportunity to invest in instruments that provide an aboveaverage yield compared with traditional bonds. Above all in an environment that will see a gradual normalisation of interest rates over the next few years, it will barely be possible to generate a positive performance on the broad CHF bond market, which is why it makes sense to invest in higher-interest securities. The companies in the BBB- universe are benefiting from the current low interest environment. This gives them access to cheap refinancing on the capital market, which also has a positive effect on the default risk of the companies in question. We believe it makes sense to invest in a broadly diversified fund that is actively managed by specialists in order to minimise cluster and default risks. The fund’s performance since its launch in mid-November came to +6.87% at the end of February, which means it has outperformed the BBB-market by +2.28%. (cal)
It has recently been the goal of many investors to have a return of 5% credited to their account at the end of the year. This target has been reached or exceeded in the recent past mainly by direct investments in equities. The high prices at present suggest that now is not a good time to enter this market. Anyone who still wishes to stick to this 5% target and believes in sideways-trending or slightly falling equity markets can still achieve this goal with a structured product on the three common indices SMI, EURO STOXX 50® and S&P 500®. For more information or an individual advice on similar products, please contact your client advisor. (ost)
Banque CIC (Suisse) supports Kinderkrebshilfe Schweiz
Current interest rates in CHF (as at 01.04.2014)
For savings and pensions Savings account Investment account 3a retirement account Vested benefits account
0.600 % 0.500 % 1.800 % 1.250 %
no offer 0.250 % no offer no offer
As part of its charitable commitment, Banque CIC (Suisse) supFor day-to-day use ports three projects and institutions for a period of three years each Private account 0.125 % no offer with a substantial donation. Since 2014, the bank has been sup- Current account 0.125 % 0.125 % porting the work of the Swiss children‘s cancer charity KinderSavings account offer for clients domiciled in Switzerland or the Principality of krebshilfe Schweiz, an organisation that promotes the needs and Liechtenstein. 3a retirement offer for clients domiciled in Switzerland or the Principality of Liechinterests of children affected by the disease and their families so that tenstein and Swiss domiciled abroad. Current conditions and rates of interest can also be found at www.cic.ch. they can look forward to the future with hope again. As well as offering direct financial assistance for affected families, Kinderkrebshilfe Schweiz also facilitates holidays, organises events and invests in research and other projects aimed at improving the quality of life.
The bank for private and business clients Basle, Fribourg, Geneva, Lausanne, Locarno, Lugano, Neuchâtel, Sion, Zurich T 0800 242 124
DISCLAIMER The expected returns and estimated risk are not reliable indicators of future profits or future risks. The effective returns can deviate significantly from these values, and past positive performance is no guarantee of future returns. The conditions contained in this document are purely indicative and subject to amendment at any time. Bank CIC (Switzerland) Ltd. gives no guarantee as to the reliability and completeness of this document and rejects any liability for losses which may result from its use.
Perspectives 02/2014 Bank CIC (Switzerland) Ltd.
-Economic perspectives: Growth - what else? -Column: Bitten by the coin: Bitcoin – a self-experiment -CIC CH-High Yields Bond “CHF Primus”:...