Weekly Report 47/2025

Resilient economic development

Global economic development proved resilient to trade-related uncertainties, which emerged particularly in the spring. Globally, corporate earnings are even on track to record their best performance in three years. Worldwide, earnings growth rose by around 11%, whereas in the past two years it was closer to the long-term average of 5%. There were positive surprises, particularly in Europe.
In emerging markets, Chinese companies repeatedly fell short of expectations. The economy has been caught in a deflationary spiral for 30 months now. Youth unemployment is estimated at 30% to 40%. In addition, repeated rounds of wage cuts are leading to growing consumer reluctance.
The spiral of falling factory prices, shrinking corporate profits, lower tax revenues, falling wages, lower demand, and declining investment is exacerbated by collapsing real estate prices. Therefore, China is and remains not directly investable for us, even though developments in the current year have been very positive.
In contrast, India is growing as the fastest-growing G20 nation. The Indian index advanced in the fourth quarter (+5.4% in local currency), but larger increases are not expected until next year. A tax deal with the US is nearing completion. Many analysts also failed to notice that the inflation rate in India fell from 6% to around 0% within a year. This is unprecedented in India’s economic history and will allow the central bank to significantly lower key interest rates without jeopardizing the overall economic growth rate of 7% per annum in the coming years.
Concerns about a possible bubble surrounding artificial intelligence (AI), particularly in the US markets, caused the Nasdaq technology index and the dollar to fall equally last week. The higher the valuations of technology stocks, the greater the risk that the implied profits will ultimately fall short of expectations.
Added to this is the increasing importance of a small number of technology companies for global stock indices. With significantly greater sector diversification than can be found in the global stock index, we are proactively counteracting the consequences of a possible AI-related correction.
At the same time, the chances of a Christmas rally remain. The line between overvaluation and enthusiasm remains narrow and can change rapidly from region to region and from sector to sector. We were generally pleased with the lively reporting season in Switzerland and our discussions with numerous company executives.
The Swiss Market Index (SMI) therefore rose significantly last week (+2.7%) amid increased volatility. Since the beginning of the month, the SMI (+3.3%) has been the best-performing stock index by far, while the US tech index Nasdaq, for example, lost considerable ground (-3.5% in USD, -4.8% in CHF) and has only just remained in positive territory since the beginning of the year (+3.8% in CHF).
The global stock index also suffered from the decline of the dollar (-12.5% since the beginning of the year). At the end of last week, it stood at +3.4% (in CHF).