According to Citi Chief Economist Willem Butler,
“More than 40 per cent of global GDP now resides in jurisdictions (overwhelmingly in the advanced economies) running fiscal deficits of 10 per cent of GDP or more. For much of the past 30 years, this fluctuated in the 0-5 percent range and was dominated by emerging economies.”
Switzerland is an exception. The Swiss franc is one of the most stable currencies in the world and performs well in times of financial turmoil. Investors will be moving to quality companies, countries and currencies.
Currency traders have been building up bets on a rise in the Swiss franc (FXF) in anticipation that the Swiss National Bank will soften its stance on currency intervention at its widely anticipated policy meeting on Thursday. Chances are that the central bank, which has been fighting pressures on the Swiss franc to appreciate, will begin to scale back interventions to stem the rise of the Swiss franc.
The FT reports that Paul Meggyesi, FX strategist at JPMorgan, says that “Switzerland had a relatively mild recession and is enjoying a fast recovery compared with its peers.” In addition, Switzerland’s current account surplus, high private savings and low sovereign risk is in sharp contrast to eurozone instability.
While only 137 miles by 216 miles in size, and with a population of 7.2 million, Switzerland packs a punch and is a multinational powerhouse. Let’s take a quick look at the asset side of Switzerland’s balance sheet. It has a strong currency backed by ample gold reserves, fiscal discipline, trade surplus and very little foreign debt. Outward looking, Switzerland has 40% of its gross domestic product attributed to exports. Switzerland represents the third-largest financial center in the world after New York and London. It is also home to world-beating pharmaceutical, engineering and food companies.
Switzerland enjoys a stable government, vibrant democracy and a reputation as an asset haven in times of stress. The Swiss have had a functioning democracy for 500 years and actually has a fairly weak central government, with a legislature that meets for only two weeks, four times a year.
About 45% of the Switzerland ETF’s (EWL) holdings are concentrated in three great companies: Nestle (NSRGY.PK), Roche Holdings AG (RHHBY.PK) and Novartis (NVS) all of which are pretty good defensive plays. The p/e ratio for the Swiss market is in line with the S&P 500 and lower than almost all other major European markets. I also like this ETFs sector breakdown, led by Health Care 32%, Financials 22%, Consumer Staples 19%, Industrials 11%, Materials 8%, Consumer Discretionary 6%, and Telecom 2%.
You will sleep better with Swiss quality in your portfolio.
Disclosure: None
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