No rapid economic recovery in sight
Summary of findings
Investment experts working at Swiss-based asset management firms have a distinctly negative view of the outlook for Switzerland’s economy and the financial markets as a result of the coronavirus crisis. Only a small minority expect a V-shaped economic recovery. Compared with other countries, however, the negative impact of the pandemic is likely to be much less severe for Switzerland.
Economy and geopolitics
It comes as little surprise that the asset management specialists surveyed are most concerned about the global recession triggered by the measures taken to fight the coronavirus. This means that geopolitical tensions have moved into the background somewhat, despite having escalated since the last survey. Four out of five respondents expect a U-shaped economic recovery, 18% a protracted slump (L-shaped) and only 3% a swift return to the previous growth trajectory (V-shaped). The experts unanimously believe that the impact of the coronavirus crisis on Switzerland will be smaller than or at worst comparable to that in other countries.
Financial markets and asset allocation
According to the experts, the return prospects of Swiss equities have deteriorated significantly. Around 30% of those surveyed expect a negative return in the next 12 months. The main driver of returns cited is the exceptionally expansionary monetary policy aimed at cushioning the effects of the economic slump. The interest rate outlook has been revised sharply downwards again compared with the autumn 2019 survey. Only 13% of respondents now anticipate a rise in interest rates this year – the broad consensus now seems to be “lower for longer”. Experts also think that the Swiss franc’s strength will persist. The British pound was seen as the currency most likely to appreciate versus the Swiss franc in the last survey, but it has now slipped back into last place. In terms of asset allocation, many investment specialists expect to see higher equity allocations despite relatively weak expected returns. Bonds and cash, on the other hand, remain out of favour.
The Swiss National Bank (SNB) enjoys considerable support among the asset management specialists surveyed. Some 95% of respondents believe the SNB’s current monetary policy is appropriate. This is by far the highest figure recorded so far and much higher than the 60% result in the last survey. Not one single survey participant wants the SNB to be more restrictive at present. This is also reflected in the fact that over 90% of the experts are not expecting negative interest rates to go away before 2023. The generally strong Swiss franc (CHF) does not present too high a risk against the backdrop of the economic slump. Half of the experts see it as fairly valued at the moment, while 10% actually see its valuation as too low.
Outlook for the asset management industry
The outlook for the asset management industry in Switzerland has worsened further. Over a third of investment experts anticipate a negative business environment over the next 12 months. The proportion of optimists has fallen further to 13%, whereas half of survey participants predict a stagnating environment. Around a quarter thus expect a headcount reduction in their company. With regard to remaining competitive going forward, innovation and focusing on a niche are the most commonly cited strategies. Scarcely anyone believes that cost savings represent a promising strategy.
The volume of assets managed in line with sustainability criteria has once more increased slightly since the last survey. Some 37% of the asset managers surveyed already have more than half of their assets under management invested in accordance with environmental, social and governance (ESG) standards. Client demand is still seen as the main driver of growth in this area. That said, regulatory requirements in relation to ESG have now established themselves as a further catalyst, and product innovation on the part of asset managers is accelerating growth much more strongly than before. Almost half of the investment experts additionally think that Switzerland and in particular the Swiss asset management industry are ideally placed to play a leading role in sustainable investments. A combination of promoting Switzerland’s inherent advantages and developing recommendations for asset managers without preventing a competition of ideas between individual providers is seen as a promising strategy.