Swiss steer careful path through uncertainty

Switzerland is having a good crisis. Although few in the financial hubs scattered across the cantons would boast about it, Switzerland is managing to steer a careful course through the extreme volatility that surrounds it.

There are certainly macro-economic challenges. The Swiss National Bank (SNB) has been on constant alert as global investors pour into the Swiss franc, driving it up to levels that are clearly painful for the country’s significant tourist and exporting sectors. In December, the SNB finally announced a virtual peg at 1.20 to the euro, saying it was ready to defend that level indefinitely.

Reaction varied between those who were pleased at the surprise move and those who felt the central bank would eventually be faced down by the market. But so far the peg has held, easing pressures on Swiss firms.

Due to weakness in the eurozone, Switzerland’s main trading partner, GDP growth estimates have been revised downwardsin recent weeks. For 2012, the range now extends from just 0.5% to an optimistic 2% GDP growth.

Analysts say Switzerland may have to endure an uncomfortable first half of 2012, but by H2 a sustainable recovery will be under way. Unemployment is expected to rise only slightly in 2012 with a more positive outlook for 2013, with the Swiss State Secretariat for Economic Affairs(Seco) expecting GDP growth of 1.9%.

Investors are acutely sensitive to the eurozone crisis, while the government is trying to ignore political outbursts. Finance Minister EvelineWidmer-Schlumpfadmitted preparing for the break-up of the euro, with a study on the imposition of capital controls, as well as negative interest rates to protect Switzerland from the capital flight that a euro collapse would provoke.

The macro economic outlook has inevitably impacted the domestic fund management industry. The Basle-based Swiss Funds Association (SFA) expects uncertainty to remain high through 2012.

But CEO Dr. Matthäus Den Otter said there are still opportunities for investments offering systematic diversification and controlled risks. “Certain government bonds, corporate bonds with a high creditworthiness as well as stocks with a high dividend payout ratio might be attractive for investors with a lower risk appetite.”

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