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The market at a glance: Maybe, maybe, maybe

Wednesday, January 10
Publications

2023 is dead, long live 2024! Looking back, 2023 was mostly a good year, providing a welcome change after the challenging 2022. It will be remembered as the year when cash deposits began earning returns again and most investments yielded profits - two significant shifts from which our clients greatly benefited.

To give some numbers: A client who opened an account with Alpian in January 2023 and funded it with CHF 100,000, keeping CHF 70,000 in cash and investing CHF 30,000 in a balanced discretionary portfolio, would have seen their wealth increase by CHF 2,299. This growth serves as a testament to our commitment to helping our clients grow their wealth.

Can 2024 be as good? While interest rates and markets fluctuate, making each year different from the last, you can be assured of one thing: With our advocacy for a fair banking model, you can count on us to help you make the most of the Swiss Francs you entrust to us.

Before we embark on this journey, let's do a quick recap of 2023 and share what's on our agenda.

On behalf of Alpian, I wish you a happy new year.


Market at a glance: Quizás, quizás, quizás

Key takeaways

2023 was challenging to predict, with most forecasters missing the mark, as is often the case.

  • Despite all signs pointing to poor market performance, the year turned out to be favorable overall.

  • Equity markets in the U.S., Europe, and Japan flourished, while Swiss and Chinese markets underperformed. The strength of the Swiss franc reduced returns, but international diversification remained a sound strategy.

  • Bond markets experienced initial drops due to rising interest rates, followed by a rebound later in the year. As we are likely witnessing the end of the interest rate hiking cycle, bondholders can expect increased visibility.

  • Cryptocurrencies staged their anticipated comeback, contributing positively to portfolio returns.

  • Holding cash wasn't disadvantageous, yet Swiss investors could have benefitted more from investing in financial markets. A balanced strategy at Alpian yielded a 6.13% gain.

  • Forecasts for 2024 suggest challenging times, but such predictions only affect those who believe in them. Our recommendation: prioritize actions over forecasts. A patient, long-term approach with tactical adjustments surpasses reliance on uncertain predictions…

If we were to summarize 2023 with a single song, it would be “Quizás, quizás, quizás”. This iconic song by Cuban songwriter Osvaldo Farrès written in 1947 has been covered by many renowned artists, from Bing Crosby to Nat King Cole, and more recently by Andrea Bocelli and Gregory Porter.

With its melancholic melody and vivacious rhythm, it tells the story of a protagonist in a relationship with someone who never provides clear answers ('Maybe, maybe, maybe'). Why this choice?

Well, it's essentially the answer the market gave to all the modern-day Pythias who tried to divine its course by reading its entrails throughout the year.

Nearly all questions asked received the same elusive treatment: 'Is a recession imminent?', 'Have we reached the peak of high interest rates?' 'Should we expect consumers and companies to struggle if interest rates remain high?' 'Will real estate markets decline if borrowing becomes more difficult?' 'Are cryptocurrencies becoming mainstream?' 'Is the Chinese market poised for a rebound soon?' 'Is de-dollarization happening now?', etc.

Each time, investors were left with mixed pieces of economic information: “Maybe, maybe not”. And it didn’t prevent markets from running their course.

What happened with equities

Looking back at the forecasts from many analysts, 2023 was not expected to be a favorable year for equities.

As the year began, the economic outlook appeared grim. High inflation persisted in most countries, and central banks were resolved to raise interest rates to curb it, risking economic recessions. Therefore, modest returns were anticipated for equity markets.

And yet they defied expectations.

How good was it? Let’s have a look at the numbers:

The US and European markets recorded a gain of 26.3% and 23.2%, respectively. The standout was the Japanese equity market, ending the year with a 28.25% increase.

However, not all countries saw such stellar returns. The Swiss market, with a 7.06% return, did not keep pace with its neighbors and Chinese markets posted negative returns.

What drove this unexpected performance? While it is impossible to attribute the reasons to a single factor, several key drivers can be identified: improved investor sentiment towards the end of the year, the potential offered by AI, the prospect of lower interest rates, and the surge in flows from passive investments.

Let’s have a look at some interesting facts:

  1. Out of 92 country indices, only 21% recorded negative returns in 2023. Argentina was the top performer, while Kenya was at the bottom.

  2. The scenario differs from the perspective of a Swiss investor. Due to the Swiss franc's appreciation against most currencies in 2023, investing abroad without currency hedges was difficult. For instance, a Swiss investor in U.S. equities would have realized only a 14.93% return (compared to 26.3% for a U.S. investor).

  3. Despite the strength of the Swiss franc, international diversification proved beneficial.

  4. In sector performance, technology led, while utilities, healthcare, and consumer staples lagged.

  5. Fewer companies went public this year, and startup funding significantly decreased compared to 2021 and 2022.

What happened with bonds

The year 2023 was a tale of two halves for bondholders. The year began as a continuation of 2022, with central banks raising interest rates, leading to a downward adjustment in bond prices. However, as the pace of rate hikes slowed towards the year's end, bond indices rebounded and finished in positive territory.

Presently, we believe that bond asset classes offer appealing prospects to investors, with attractive yields and potential for price appreciation if central banks decide to lower rates.

For example, Swiss corporate bonds currently yield 1.72%. Hypothetically, if the Swiss National Bank were to cut rates back to 1% (from the current 1.75%), investors could hope for an additional 3.3% in performance due to price appreciation.

However, this simple estimate does not account for default risk. When lending to companies, the risk of non-repayment is genuine, and this risk has become more pronounced as many financially weaker companies struggle.

Consequently, careful selection of issuers will be crucial in 2024. In an economic environment filled with uncertainties, the certainty of cash flows is becoming increasingly attractive, particularly if interest rates on deposits decline.

What happened with commodities, currencies, and digital assets

When faced with uncertainty, forecasters often turn to gold. Factors like inflation, the threat of recession, political instability, and wars in recent years have given gold ample reasons to rise.

However, the yellow metal did not capitalise on these opportunities as expected. While it is closing the year with a positive gain of 13%, its value remains at the level it was in 2020.

The performance of commodities in 2023 was also somewhat disappointing. It appears that real assets gave way to digital assets this year. With most cryptocurrencies experiencing a resurgence (e.g., Bitcoin: +153.2%), investors could rely on an additional asset class to enhance their portfolio's return.

What is in store for 2024

As of today, investors are still grappling with the same questions as last year, and the answers remain 'Maybe'.

While inflation has eased and central banks seem more inclined to relax monetary conditions, the issues of the damages already inflicted on economies and the likelihood of a recession are still on the table.

However, 2023 served as a stark reminder of two crucial realities: First, the performance of economies and the performance of markets are distinct entities, making a sole focus on economic variables a risky gamble. Second, forecasts are similar to New Year's resolutions, valuable primarily to those who believe in them.

That's why our approach to 2024, much like in 2023, will be to focus on the long term while seizing short-term opportunities. We believe our role is to adapt rather than to forecast. This is not to say that we lack a perspective on the markets; quite the opposite. However, if you really want to understand our stance, look at our portfolio actions rather than our opinions.


Demystification room: to hedge or not to hedge?

The Swiss Franc has always been both a curse and a blessing for the Swiss. It's a blessing for holidays and imports, but a curse when investing abroad.

2023 illustrated this well. With the Swiss Franc appreciating by 9.0% against the US dollar and 6.1% against the euro, Swiss investors who invested outside Switzerland saw diminished gains due to currency fluctuations.

However, currency risk isn't inevitable, as there are ways to hedge investments. For instance, if you're investing through funds and ETFs, consider a hedged share class.

It’s important to note that hedging costs have risen recently. For example, hedging a basket of international stocks (MSCI World) costs between 2.5% to 3.5% per annum in recent years.

This presents a tricky choice for investors: Accept a sure cost, akin to an annual tax on investments, or face large fluctuations that can significantly impact returns.

Without a crystal ball, historical data offers valuable insights. Over the past 22 years, hedging against currency risks in a basket of international stocks would have been the better strategy, not just from a return perspective but also in reducing risk (as measured by volatility). While these findings aren't absolute, for Swiss investors, considering hedging could be beneficial.


Have you considered using Alpian for your currency exchanges?

If you convert 10,000 Swiss francs to Euros, how much do you get?

The reality of converting money often involves hidden fees, commissions, and inflated rates, a familiar issue for frequent travelers, online shoppers on international sites, and anyone sending money overseas.

On average, in Switzerland, you could be losing as much as 1.4% on every transaction. But with Alpian, it's a different story – we keep our mark-up to just 0.20% on weekdays.

Our recent comparative study with Switzerland's top 7 money exchange providers shows a stark difference: Alpian leads in currency exchange, offering you the best value for your money.

Infographic insight: When converting CHF 10,000 to EUR, the amount you receive varies significantly among providers. Our infographic reveals the real numbers, showcasing the savings you can enjoy with Alpian compared to others.

This means more Euros for every franc you exchange, especially when converting Swiss Francs to Euros, US Dollars, and British Pounds.

Dive into our comprehensive study for a clear picture: Comparative analysis of foreign exchange rates: Alpian’s competitive advantage

Wednesday, January 10
Publications
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