Mr. Kalt, forecasters are expecting the Swiss economy to grow by around 1.5 percent in 2017. What do you think of that forecast? Is the glass now half empty or half full?
We are also expecting growth of this magnitude, and for me that means the glass is half full. Because in view of the franc’s strength this is not a bad rate of growth. Growth rates similar to what we saw previously are no longer realistic, even though the Swiss economy has performed very well in a difficult environment. Migration is falling, the building boom is slowing down and there is less investment. All these things taken together will result in this “lukewarm” growth.
You mentioned the so-called franc shock. What is the likelihood of something similar happening in 2017?
We do not anticipate it. The two-pillar approach of the SNB combining negative interest rates and sporadic exchange market intervention has been working, as we have seen recently after Brexit and the US elections. And we hope that the SNB plan will continue to succeed. However, it can’t be ruled out since there is always some element of risk in this world.
In such a case the SNB would probably lower the negative interest rates still further.
If the euro/Swiss franc exchange rate were to fall well below 1.05, the SNB would probably act. For instance, with even lower negative interest rates. But for that to happen there would really need to be a shock-like event in the eurozone.
Elections will be held in various countries of the eurozone in 2017.
The elections in France, the Netherlands and Germany pose the most obvious risks. As with the US election, there is some potential for surprise. Economically, however, it does not look too bad – not least because the European Central Bank’s bond purchase program will keep interest rates in the eurozone low long-term and hold the entity together.
So we will not see a break-up of the eurozone in 2017.
I do not anticipate that at all. The political will to preserve the eurozone come hell or high water, is still probably underestimated. What I could imagine in the longer term is that smaller countries will leave the eurozone.
The new US President Donald Trump is seen as another risk factor. Why did his election lead to new highs on Wall Street?
Apparently, the markets have focused on the positive aspects of Trump’s declarations of intent. For example tax cuts, which would lead to higher company profits, or investment in US infrastructure, which would stimulate growth. However, much is still open, especially his foreign and trade policy. It is just a case of waiting and following developments closely.
What recommendations would you make to small investors in these times of uncertainty? Something stable, such as gold?
As broad and international a diversification as possible is the key thing. 2016 was perfect proof of this. Those with shares only in Swiss companies came off relatively badly; in the United States, however, one record followed another, and in some emerging markets too there were encouraging developments. But it is also important to have a diversification across all investment classes, so it is quite conceivable to have some gold included. But at current yields from bonds there is really no getting round shares.
Do you have any favorites among the different shares?
We particularly recommend dividend-bearing securities. In the SPI we currently have a dividend yield of 3.5 percent, a value that the bond market can only dream of. In addition, we recommend investments in mid caps instead of large caps.