cic perspectives 04 2014 english

DEAR READER

Imagine there‘s a war and nobody noticesThe current geopolitical tensions are keeping the world on tenterhooks. The Middle East is descending into chaos due to the fight for an Islamic state. As a result, the war in Syria is moving into the background, the escalation in Libya hardly merits a headline and bad news from Iraq has for a long time been part of the “new normality”.

Particularly interesting from a European perspective is the conflict in Ukraine. As part of NATO, the western powers are imposing sanctions on Russia, the party they identify as warmonger. In turn, Russia is retaliating with a ban on imports of western agricultural goods and foodstuffs. Welcome to Cold War 2.0.And how are the markets responding? Surprisingly calmly. On the one hand, it can be concluded from this that investors expect the Ukraine crisis to ease sooner or later. On the other hand, it also means that the current price quotations are too high should the situation escalate into a conflagration after all.

Compared historically, the summer here in Switzer-land was unusually wet and the month of August unusually cold. Let us hope this does not mean that a “hot autumn” awaits us.

Mario Geniale, Chief Investment Officer

Economic perspectivesAccording to the latest data from the State Secretariat for Economic Affairs (SECO), the Swiss economy stagnated in the second quarter. It seems as if Switzerland and exporters in particular are increasingly coming under pressure again due to the prevailing unrest in the eurozone, as the KOF Economic Indicator also confirms.

By contrast, US labour market data has been positive for some time. How-ever, it should be noted here that the participation rate on the job market has been decreasing sharply in the past few years, thereby making the entire labour market less transparent and more difficult to assess. This is most likely also the reason for the general uncertainty concerning the future monetary policy of the US Fed.

The equity markets in the emerging markets have recently succeeded in continuing their extremely positive performance, also in comparison with the developed countries – and this despite the fact that economic and corporate figures often proved only moderate. The majority of these countries will remain dependent on strong growth in the future, thereby making a future easing of monetary policy on the part of the central banks even more likely.

Autumn storms in Europe?

With year-on-year growth of 0.7%, the economic situation in the eurozone is improving only hesitantly. The largest economies in the eurozone are faltering. Although countries such as Spain and Portugal recently surprised with pos-itive economic data, these figures are attributable more to base effects than to healthy growth. In view of this, the European Central Bank reduced the euro base rate to a new record low of 0.05% in September. This move is also in-tended to counter inflation, which in August fell to 0.3%, its lowest level since 2009. The completely unpredictable geopolitical problems are also weighing down globally on sentiment. In this environment, the economic situation for the fourth quarter generally looks gloomy to stormy. (muc)

IMPRINT Editor: Bank CIC (Switzerland) Ltd.,Marketing and communication,Marktplatz 11-13, P.O. Box 2164001 Basle, Switzerland, T 0800 242 124Authors: John James Bayer ( jb),Jürg Bützer ( jub), Luca Carrozzo (cal), Mario Geniale (mge), Christian Meier (mch), Carl Münzer (muc),Olivia Stählin (ost), Prof. Simone Westerfeld (guest column) Editorial deadline: 15.09.2014

04/2014 QUARTERLY MARKET OUTLOOK

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SWISS EQUITIESThe Swiss economy enabled companies to achieve sound profit growth, although the export business in particular was negatively affected by cur-rency fluctuations. Although the broad Swiss market is less volatile than other equity markets, the current high valuations seem to be pointing to-wards limited upside potential in the immediate future. However, we still see considerable potential for small and mid caps as this segment offers a more attractive valuation and higher earnings prospects than the large caps. Having said this, we consider the shares of Roche Holding AG to be an ideal investment in the healthcare sector. For investments in small and mid caps featured in the SPI EXTRA Index, we recommend a broadly diver-sified investment fund. (mch)

EUROPEAN EQUITIESThe rapid rise of the European equity indices has started to stall. This comes as no surprise, as the economic headwind and political turbulence have increased markedly. Europe recently left the growth path again and the regional differences are expanding further. The political environment in and around Europe is also in a state of flux. The escalating conflict in Ukraine remains unresolved and the short and long-term effects of the mutual spiral of sanctions are difficult to predict. Having said this, the crisis-tested investors are barely being put off. The general investment crisis and his-torically low interest rates continue to favour equity investments. We are maintaining our cautious stance and favour defensive and multinational companies such as Allianz (insurance), Sanofi (pharmacy) and Royal Dutch (energy). ( jub)

US EQUITIESBoth the majority of fundamental economic data and the forecasts con-tinue to attest sound growth for the American economy. The US is there-fore once more serving as the global economic engine. In line with this, the US equity market continues to reach new highs and is undoubtedly trading in the overvaluation zone. We note that the base of those securities con-tributing to the upswing is becoming increasingly thinner. Are these the signs of an imminent correction? Paradoxically, there are few other alterna-tives to equities in view of such historically low interest rate levels. General Electric, Chevron and AT&T are dividend plays with growth potential. ( jb)

BONDSThe bond markets are continuing to develop as they have been doing since the start of the year: bond prices are rising and yields are falling. The reasons for the increase in bond prices lie in the risk aversion of investors, which has had a firm grip on the markets since the middle of the year. The geo-political risks are prompting investors to invest in supposedly safer bonds. The low yields entailed by these are the result. Ten-year Swiss government bonds have therefore at times been trading at less than 0.45%, while ten-year German government bonds even reached a record low of 0.88%. This caused Mario Draghi, President of the European Central Bank, to introduce a bond purchase programme at the start of September that is intended to support the economy and in doing so cause interest rates to rise again. (cal)

Where will the markets take us by the end of the year? Seldom have analysts disagreed so much as is the case today. The fact is that general growth and the investment climate are suffering from the Ukraine crisis. However, attention is mostly being drawn away from this situation by the continuing investment crisis – brought about by cheap money, low interest rates and high share prices. Nevertheless, we believe that the major equity markets will end 2014 with an annual performance approaching ten per cent. (mch)

The Markets “Seldom have analysts disagreed so much as is the case today.”

Small and Mid-Cap index (SPI Extra)

Euro Stoxx 50

S&P 100

Perspectives 04/2014 Bank CIC (Switzerland) Ltd.

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DEAR READER

The financial knowledge of private individuals is poor. The majority of the population is unable to answer even the simplest questions correctly, as a study by Annamarie Lusardi and Olivia Mitchell from George Washington University and the University of Pennsylvania revealed in the spring. It appears that many entrepreneurs also consider themselves to be insufficiently equipped with specialist financial knowledge – although a higher level of questions was posed. This is the insight to be gained from a study carried out by the University of Applied Sciences Northwestern Switzerland on

behalf of and in collaboration with Banque CIC (Suisse) a market research institute canvassed 363 corporate decision-makers and self-employed entrepreneurs individually.

Although a healthy financial foundation is imperative for a pros-perous company, between 27% and 49% of entrepreneurs claimed that there was clear potential for improvement in the four areas of liquidity planning, foreign currency management, financing and documentary transactions in their company. In the first three areas especially, the entrepreneurs appear to be only moderately convinced by the measures they have taken. This is compounded by the fact that between 35% and 47% of the entrepreneurs consider themselves to be poorly or not very well advised by the banks.

While the entrepreneurs claim to be familiar with a majority of the bank products/services mentioned in the study, the figures for the use of these products and services are markedly lower. Considered from the point of view that users should only use fi-nancial products that they actually understand, this insight from the study is undoubtedly to be rated as positive. However, in light of the efficiency gains, higher returns and risk reduction opportu-nities that are going to waste as a result of this, there is a clear need for action: for example, 39% of entrepreneurs claim not to know the interest rate of their current account and are therefore foregoing the interest income to be gained from enhanced liquidity management.

According to the result of the survey, the entrepreneurs would primarily like to receive more active advice from their banks, there-by solving a basic problem identified in the study: we live in a specialised society in which entrepreneurs are not financial experts and financial experts are not lawyers, architects, doctors or industry giants. It is therefore asking too much of the average entrepreneur to optimally manage liquidity, foreign currency and financing without any outside help, in the same way as it is unrealistic to expect a banking advisor to treat his own broken nose.

It is therefore up to the banks to strengthen companies’ confidence in their services and this can and must primarily take place by means of knowledge building. Active, knowledge-enhancing advice is therefore not only something entrepreneurs would like to see, it is also a necessity. However, this is by no means a one-way street, as the entrepreneurs are also called on to obtain information and compare the services/products of the banks in order to find the best holistic solution for their company covering the areas of liquidity, foreign currency and financing.

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The column reflects the personal opinion of the author.

Brief biography:Simone Westerfeld studied business studies at Stockholm School of Economics (SSE) and the University of St. Gallen (HSG) where she gained her doctorate in October 2004. After working for several renowned banks in Germany, Switzerland and the US, Ms Westerfeld was granted the right to teach at university level and appointed assistant professor at HSG in April 2010 after successfully completing her post-doctoral degree. Prof. Westerfeld accepted a position as Professor of Banking at the Institute for Finance (IFF) of the School of Business at the University of Applied Sciences North-western Switzerland in Basel in February 2012, where as Vice Head of Institute she is responsible for the Banking & Finance competence centre. Her research priorities lie in the areas of credit risk management, relationship banking and secondary markets for credit risks. Alongside her research activities, Prof. Westerfeld advises financial institutions in the German-speaking world. Simone Westerfeld is married and lives with her husband and four children in Zurich.

The Column With Prof. Simone Westerfeld, Head of the Banking & Finance centre of competence, School of Business, University of Applied Sciences Northwestern Switzerland, Basel


Entrepreneurs and finances: there is a need for action on both sides


Interest rates will rise …Financial experts are continuously telling us that interest rates will rise. Short-term interest rates have more or less landed at 0% and the ten-year government bonds of Germany and Switzerland are also yielding incredibly low returns below 1%. When making its most recent interest rate cut at the start of September, the Eu-ropean Central Bank announced that this would be the last one. This suggests that interest rates are likely to rise again, which would have a negative impact on bond prices. Despite an environ-ment of rising interest rates, it is possible to invest money suc-cessfully in bonds. Active management and hence targeted con-trol of duration (capital commitment period of an investment) offers added value compared with passive strategies. An invest-ment in higher-interest securities can also be attractive due to the positive correlation with equities. Your client advisor will be happy to advise you. (cal)

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 perfor-mance 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.


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Children paint for children with cancer and their families

At the “Children paint for children” special event at the 18th Con-cours d‘Elégance in Basel, youngsters decorated a genuine classic car, transforming it into a colourful work of art. This charitable event was organised thanks to the social engagement efforts of Banque CIC (Suisse). The entire proceeds of some CHF 6,000 will go to the Swiss childhood cancer organisation Kinderkrebshilfe Schweiz. The four-wheeled work of art will be on display at the Mercedes Caffè Spot in Basel. You can find more pictures at: https://plus.google.com/+bankcic

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CIC CH – Strategy (CHF): lucrative diversification thanks to mixed funds It is particularly advisable in the current market environment not just to focus on a single market. Strategy funds are an effective in-strument for doing so. Strategy funds invest simultaneously in a variety of investment categories (equities, bonds, commodities etc.). The investment strategy combines the growth opportunities of more risky investments with comparatively secure investments. Depending on the market situation, the individual exposures of the strategy fund are adjusted. With the CIC CH – Strategy Fund, the experienced team of experts at Banque CIC (Suisse) assumes this important task on your behalf. With just a small investment amount you can participate on the stock markets and pursue an investment strategy with sophisticated diversification and active risk management. For further information, visit our homepage www.cic.ch or contact your client advisor. (CIC CH – STRATEGY (CHF), ISIN LU0111730122) (ost)


cic perspectives 04 2014 english

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