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Despite progress in vaccine rollouts and signs of recovery in some countries – which has encouraged a rotation towards coronavirus-vulnerable sectors in global equity markets – the Switzerland Index has continued to underperform the USA Index both in local-currency (LC) and common-currency terms. Accordingly, strategists at Capital Economics are revising down their forecast for Swiss equities.

End-2021 and end-2022 MSCI Switzerland Index forecasts lowered

“Our view remains that the rotation in global equity markets will resume soon. All else equal, we still expect this to benefit the Switzerland Index given its high combined weighting of coronavirus-vulnerable sectors.”

“The Switzerland Index would continue to miss out on the rotation towards energy, which we think is set to perform well for the remainder of this year. We have pencilled in the price of Brent oil pushing higher to $70 by end-21 (from ~$67 currently). What’s more, the Switzerland Index has a higher share of ‘defensive’ sectors than the USA Index (~59% and ~22%, respectively) – such as consumer staples, healthcare and utilities – which are likely to gain less in a cyclical upturn such as the one we are forecasting.”

“We now think that the MSCI Switzerland Index will rise by around 8% between now and end-2022 in LC terms, which is roughly in line with the returns we project for the USA Index during this period. What’s more, given that we expect the Swiss franc to weaken further (to ~0.99 per US dollar by end-2022), we forecast that the returns of the Switzerland Index in US$ terms will be broadly flat over this period.”