International Investments pay off: The cyclical differences between Europe and the USA economies are vast and affect different markets, as well as monetary policy.

After the financial crisis, the United States and Europe rebounded equally. However, since 2011 the United States recorded almost 8% increased growth compared to the euro zone. This can still be considered as moderate growth when compared to other nations around the globe.

Several factors point to a continuation of this trend: Many American companies proved to have positioned themselves more effectively in world markets, post financial crisis. In addition, the euro crisis hasn’t ended yet. The current sanctions imposed on Russia won’t lead to any meaningful improvement of European economies either.

These transatlantic economic differences have numerous effects on the economy in general and on different markets in particular: Due to America’s stronger economic cycle, profits are set to rise significantly faster in American companies as opposed to European companies. The equity markets in Europe are fragile due to its poor economic cycle. This is reflected by the sharp decline of the DAX (-8.5%) in the beginning of July.

Another effect can be witnessed by the difference in pricing: due to increased demand, consumer prices grew 2.1% faster in the United States, than in Europe. At the same time inflation was halved in the US since the beginning of the year. Hence, different monetary policies are applied: The Federal Reserve welcomes a tighter monetary policy, while the European Central Bank attempts to boost economic activity.

The impacts on the bonds markets are also worth mentioning: in relation to the current economic situation, a decrease (or remaining constant) of European interest rates and a rise in American interest rates are expected. However, the yields outside the United States could increase because the expected increase in American bonds yields could have a major impact on, for example, emerging and developing countries.
Lastly, an impact on exchange rates are to be expected: The dollar should get stronger and the euro consequently weaker.

In summary we conclude, it makes sense to make international investments and benefit from a stronger international risk diversification. The American markets offer this opportunity in particular, considering the possible exchange rate gains and Americas positive economic development.

Given the current situation, it seems clear that the Swiss financial place will eventually become smaller. Nevertheless, for assets transferred from generation to generation, stable countries are still a first choice. If you would be in Asia and if you would have saved money to hand over to the next generation of your family, where would you go with your assets? There is a chance that you may go to Singapore.
Or you would go to Switzerland, like many families from Western Europe do, because Switzerland has been strong and stable country for centuries.

Perhaps the Confederation is going through the worst period in decades. Swiss bankers record outflows, and it seems likely that this will continue for some time. However, one can also observe a huge influx, mainly from Asia and other emerging economies. These funds do not enter Switzerland directly, but through places like Hong Kong or Singapore, financial centres where Switzerland is well represented. The most important Swiss banks continue to pursue their strong “on-shore” strategy initiated since 2000.

Switzerland remains attractive, which is positive. Internally, banks are under fire, and at least half of the population believes that bankers are not only crazy, but moreover overpaid. However, this phenomenon is perceived differently in Asia where Swiss banks are still considered the best in the world and where confidence is sky-high. This confidence can be attributed in large part to the confidence towards the country itself and its political system where all political parties are represented in government.

The political system of Switzerland is well perceived and admired abroad …and as long as this lasts, the prospects are good!

Written by: Stefan Zeiss

On the 1st of July, the German stock index DAX celebrated its twenty-five year anniversary. 25 years ago, on the 01.07.1988 the German leading index was noted for the first time with 1,163 points. The DAX reached its highest level to date in May of this year, when it stood at 8,557 points.

Would you have placed 10,000 euros back then, you would receive 68,250 euros today, representing an annual yield of around 8%.

The individual stocks in the DAX have developed quite differently. While the German Telekom and Commerzbank shares were among the worst (they lost more than 90% in their worst times), other titles such as BASF, with a performance of 2.900%, Volkswagen and Bayer with approximately 2.000% shined (each including dividends).

Since the German DAX was designed as a performance index, the dividends, which pay off the stocks in the Dow, play a significant role as they are automatically reinvested in the index.

Meanwhile, the German DAX has established itself as a benchmark. It’s a good indicator of the state of the German economy.

Judging from current prices, one could conclude that the state of the German economy is safe and sound.