Inflation, interest rate movements, the economy and corporate balance sheets will have a huge impact on the performance of the SMI in the second half of the year. While there is relative clarity with regard to inflation and interest rates – both are trending downwards – question marks remain about micro- and macroeconomic growth. Companies at least have made a good start to 2024: three quarters of the stock market elite have managed to exceed or at least meet forecasts, with only one third falling short of estimates. Although disappointing results were clearly in the minority, the SMI experienced a relatively sharp slowdown, because two heavyweights, Nestlé and Roche, failed to meet expectations. These stocks have also significantly underperformed this year. While Roche’s participation certificates have only managed a small gain of 3.5% since the turn of the year, Nestlé is down by the same amount. What is positive, though, is that after the first quarter three members of the SMI, namely ABB, Alcon and Novartis, have already upped their forecasts for the year as a whole.
VThe curve of the economy as a whole could also point upwards. The latest economic forecast from KOF assumes that Switzerland will enter recovery in the second half of 2024 on the back of rising consumer spending and investment in major European markets, which should in turn help drive exports. Supported by solid GDP growth, the domestic labour market should also stay robust. The State Secretariat for Economic Affairs (SECO) recently raised its forecast for economic growth this year a little from 1.1% to 1.2%. According to the government’s economists, GDP could then climb another 1.7% in 2025.
The prospects may not be exhilarating, but the economy and the corporate sector are at least standing on a solid foundation which allows growth. Should this prove to be slower than expected, however, the equity market may suffer repeated setbacks. A capital protection certificate fits perfectly in this scenario, because it allows investors who have a fundamentally positive outlook to participate in price rises without at the same time having to fear corrections in the market. The new capital protection certificate with cap on the SMI offers full protection for the nominal at the end of the term.
Price increases in the SMI are converted entirely into profits up to an upper ceiling of 132%. Although the prospective gains are limited by the cap, the return is impressive, with the possibility of achieving a return of 8% p.a. relative to the maximum repayment amount. That puts the potential return above the average for the SMI over the last few years. Although the index recorded double-digit percentage gains in many years, there were also constant heavy losses. The average return achieved since 2016 has been 4.4% p.a.
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