The present times are embossed by uncertainty. This also holds true for the world of investing. Most of the share prices are mainly dependent on the development of the Covid-19 pandemic. Consequentially, the relationship between business fundamentals of a company and its stock price is often lost completely. At least in the short term.
This situation allows for several conclusions in regards to sound investment decisions. Here I want to mention that going through annual reports and analysing stock charts before making a transaction remains crucially important! However, there might be an option to reduce the current uncertainty and ideally maximize your short term returns.
Switzerland: The answer to it all?
As all of you know, Switzerland is a small and wealthy European country. Next to producing good cheese and chocolate, it might offer very attractive investment opportunities. The reasons for that are as follows:
Low state indebtedness
Comparatively, Switzerland has an extremely low state indebtedness. In 2019, the US debt debt-to-GDP ratio was about three times larger than Switzerland’s. This low level of national debt is an unbelievable advantage in the current situation. It gives the Swiss government the necessary leeway to support its economy when needed and doing so in an effective way.
The Swiss Franc is known to be a safe haven currency. This means that during crises people prefer to hold Swiss Francs (CHF) rather than their own national currency. Consequentially, the Swiss Franc usually appreciates in difficult times. Therefore, next to share price gains, also currency gains might occur.
It must be mentioned that a lot of the appreciation of the CHF already happened. Nevertheless, in particular, for investors who want to hedge against the risk of the current crisis becoming worse, this might be an attractive solution.
The social and political system of a country is threatened the most by uncertainty. It feels superfluous to explain the detrimental effects which political instability has on investments in a certain country. Given Switzerland’s manageable size, its already high degree of democracy and its past development, it is justified to consider Switzerland as one of the most stable countries existing.
This section will analyse the coronavirus from a purely financial standpoint. Please do not forget the awful effects this pandemic has on the lives of millions of individuals.
In this special situation more must be taken into consideration than just the overall strength of a political system. As aforementioned, many stock prices nowadays are driven mainly by the development of the global pandemic. Therefore, the way a country deals with the coronavirus is crucial if you want to invest into companies operating in said country.
Switzerland is known to generally have a very good healthcare system. This leads to the conclusion that the pandemic from a medical point of view will be handled in a very professional way. Concerning the cases per capita, Switzerland has slightly more than average among the European countries. This fact should surely not be neglected. One should however also keep in mind that Switzerland has sufficient coronavirus tests at hand, which might distort official statistics. Moreover, the situation in the USA is generally far worse than it is in Europe.
I live in Switzerland and it would be false to state that the fear of the outbreak of a second wave is not existent. However, the way the Swiss government deals with the issue is very professional and convincing. In my opinion, Switzerland is able to handle this terrible health issue. Especially the fact that a lot of testing is done and that countermeasures are reintroduced if lifted too soon is quite convincing.
What does this mean for you?
The influence of changing exchange rates on overall returns is often neglected. In the present situation, the Swiss Franc could offer an opportunity to use currency appreciation to your advantage, given that a lot is already priced in.
The more important aspect, however, is the extreme stability of the Swiss system in comparison to most other countries. Generally and especially in times of crises, it is important to have as much certainty as possible. Everything else would be gambling. In relation to the rest of the world, Switzerland is a place where you can expect a high degree of stability, resulting in more predictability of your investments.
Please also never forget that the individual stock one buys are and will always be more important than the place where they are bought from. However, for the sake of diversification, buying swiss shares might generally be very attractive to foreign investors.
I am studying business administration and I am very familiar with the stock market. However, I am not a financial advisor. Make your own research and talk to a financial professional before investing. Furthermore, I want to mention that I am privately invested in swiss stocks.