Switzerland: opportunities on the road to zero

Switzerland is enjoying favourable economic conditions, including an inflation rate running below 1%, which is significantly lower than in many developed countries. The strong Swiss Franc (CHF) reinforces the low inflation rate by driving down import prices, which are currently falling. Anticipated declines in electricity prices may further reduce domestic inflation. Given stagnant growth in the Euro Area and ongoing fiscal concerns, the euro is expected to remain weak, positioning the CHF as a “safe haven”. As Euro area inflation decreases, the European Central Bank (ECB) is expected to cut interest rates further, likely prompting the Swiss National Bank (SNB) to lower its rates to prevent excessive CHF strengthening.

While these developments are logical, they negatively impact CHF-denominated savers, as foreign assets lose value, and the strengthening CHF has historically eroded annual performance in USD and EUR. This situation necessitates a reevaluation of CHF portfolio allocations, with an emphasis on increased risk. To offset this strong currency effect, risk exposure would need to be increased via higher equity allocation and income-generating strategies.