We favor adding long positions in EWL, the Swiss market index ETF.
The economic activities in Switzerland may be slowing, but remained healthy. While the gap has narrowed, we think that stocks in Switzerland are still not reflecting the improving growth news and we want to be able to take full advantage of the value. With the core picture of improving corporate cash flows and bottoming of cyclical momentum in response to an easing in financial conditions, our team believe that the current stage is a time to profit from holding Switzerland's stock market index, and that means that the asset should remain in the portfolio.
The data continues to be a touch better, with a slight improvement in credit growth and a further easing in financial conditions. Overall, business conditions are at a level consistent with expanding output, but it is clear from the volatility of the index that sentiment is fragile. As long as the economic data continues to allow the market to take down recession risk, these themes are likely to run further. Furthermore, we expect business investment to continue growing at a healthy pace, which should also help the more positive tone to markets.
While it is easy to imagine worse outcomes and the economy is fragile to new shocks here, we think there will be more acceleration in growth as the economy stabilizes from its current troubling state. Provided the technical position is sound, our findings here are bullish for the Swiss stock market, and we plan to stick with this positive view.