A tale of two havens
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A tale of two havens

Swiss equities and gold could be heading in different directions

The substantial outperformance of US equities versus US Treasuries over the first quarter of 2024 has left many multi-asset managers and investors asking: what’s next?

In our opinion, two main risks exist at this stage for equity markets: first, after two higher than expected inflation reports in the US, it is important the normalisation of inflation towards the Federal Reserve’s target resumes. This is our base-case scenario and the market consensus.

The second risk factor is linked to the cycle of investment spending on generative artificial intelligence (AI) service capabilities. If the recent capital expenditure trend on AI were to show signs of slowing down, the market would find the perfect excuse for a correction.

It is worthwhile to note the poster child of the AI narrative, Nvidia, is due to release its results on May 22 and there is clearly no room for disappointment given the ambitious expectations.

In short, disinflation and investment in AI are the two dominant internal risk factors for US markets at the moment.

We are of course always exposed to potential external shocks, which by definition are impossible to predict. What we do know with a higher degree of certainty, however, is the short-term market impact of any such shock would vary depending on how investors are positioned.

Risk appetite today has risen, and if markets were to be hit by an external shock, we would expect the impact to be much greater compared with a year ago when most investors were pessimistic and cautiously positioned.


Last month, the Swiss National Bank took the lead in the rate-cutting cycle, reducing its benchmark interest rate by 25 basis points. In doing so, it reaffirmed its independence from its European peers.

This reinforces our view of a transitional year for the Swiss franc, which is undoubtedly weakening in the very short term. With the pause in the franc’s secular uptrend, we can expect Swiss interest rates to move closer to those in the euro zone. This should help Swiss equities to break out of their current slump.

The defensively oriented Swiss Market Index has not benefited from the current euphoria fuelled by the AI theme over the past year. Nevertheless, earnings growth expectations remain high, and the index has a solid track record in times of economic slowdown.

Sectors such as healthcare and consumer defensives make up more than 50% of the weight in Swiss equities. This helps to explain in part why AI euphoria has not had a strong impact on the Swiss market, with its low exposure to the IT sector.

Going forward, we still expect any potential global slowdown in economic growth to be positive for Swiss equities, as there is a negative correlation between global leading indicators and Swiss equity performance.

Furthermore, earnings growth expectations remain solid for 2024 and 2025 (4.3% and 12.6% respectively), while valuations continue to trade at a slight discount to historical averages. This reaffirms our constructive view on Swiss equities, and we maintain an overall overweight rating.

We do not share the same optimism for gold, another traditional haven. We regard the precious metal as a tactical asset rather than a diversifying, strategic one.

Over the long term, gold is subject to the same volatility as equities, but it has not kept pace with the returns of short-term US dollar deposits. We prefer productive real assets (S&P 500) to an unproductive one (gold).


Gold is in fact an “anti-system” asset, in the sense that it rises in value when we can no longer trust the balance sheets (both of private-sector entities and governments) in which we are usually rewarded for investing. In recent weeks, it has defied all the variables that normally influence it in the short term — notably, interest rates and risk aversion — to reach a new all-time high, even though it has still underperformed equity markets.

The most common argument for goldbugs is the looming interest rate cuts by the Fed. By themselves, lower rates are not enough to prop up prices. Instead, the cuts need to happen in a recessionary environment, which we do not expect.

Another argument is rising geopolitical risks. While gold has a reputation as a geopolitical hedge, it does not have a strong track record. Typically, there is only a short-term spike but no lasting support — unless geopolitics have a broad-based impact on the economy. Judging by the current pronounced risk-on mood in financial markets, it looks rather unlikely the gold market is concerned about geopolitics while equity markets are not.

The bullish mood in the gold market is thus not supported by any of the usual drivers: the dollar, US bond yields and safe-haven demand. Instead, gold seems to be surfing on a big wave of bullish sentiment that is accompanied by central bank purchases, which might push prices even higher in the short term. That said, in the medium to longer term, we still see more downside than upside and remain cautious.

Kean Tan is the head of investment solutions with SCB-Julius Baer Securities Co Ltd in Bangkok.

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