With the effects of the pandemic subsiding, the global economy is gradually regaining its balance. Economic, monetary and fiscal upheavals ultimately produced the highest level of inflation seen for decades.
After most central banks had been forced to aggressively raise interest rates since 2022 to contain the rampant inflation, investors noticed that the tightening of monetary policy was beginning to bear fruit in 2023. The higher interest rates increased borrowing costs for consumers and companies, which led to an economic slowdown and a reduction in profitability. When the dreaded recession did not materialise, inflation slowed down greatly, particularly in the manufacturing sector.
In the first semester, the lifting of restrictions in China prompted a brief surge in the global economy. Investors’ confidence was then eroded by signs of weakness in the Chinese real estate sector and US regional banks. The collapse of Silicon Valley Bank, Silvergate Bank and Signature Bank triggered a banking crisis in the United States, signalling the end for Credit Suisse. These events, which required coordinated intervention from governments and the private sector, caused considerable disruption on the financial markets, but their impact was short-lived.
In Europe, high inflation, the tightening of financing conditions and low levels of foreign demand reduced corporate and consumer confidence. Furthermore, Germany experienced a particularly sharp drop in manufacturing, while domestic economies in other countries such as France or Spain were more resistant to this trend.
In the second semester, conflict broke out in the Middle East just when the economies of developed and emerging markets appeared vulnerable. However, the financial markets’ response only led to minor variations in the price of defensive assets such as gold.
"In the second semester, conflict broke out in the Middle East just when the economies of developed and emerging markets appeared vulnerable."
At the start of 2024, growth remains slow and uneven with clear differences across the globe. The United States has shown strong resilience, due in particular to the effects of prosperity and full employment, which stimulated consumer spending. Nevertheless, initial signs of a decline in credit and consumption are beginning to emerge.
Overall, the pleasing development of the stock markets in 2023 contradicted forecasts. With the exception of real estate, all asset classes recorded a positive performance.
The bond market had a volatile year, with interest rates following central banks’ tightening policies and communications. After a reversal announced in the last two months, most ten-year government rates fell back below the levels posted at the start of the year. As a result, bond performance in local currencies is positive for 2023. The credit market also proved promising due to the tightening of credit spreads on investment-grade corporate bonds and even greater tightening of spreads on high-yield bonds.
In general, 2023 was a positive year for the equity markets. Investors’ concerns about the impact of the raised interest rate on corporate profits, the economic slowdown and high inflation eased. Their enthusiasm for artificial intelligence propelled technology company prices to historic levels. This meant that the Nasdaq Composite Index recorded one of its best annual performances since 2009, as did some growth stocks.
Real estate market performance varied based on the type of investment. In Switzerland, unlisted real estate funds posted fairly weak performances, while those of listed equities and funds were more robust. Investors hesitated to expand their allocation and capital increases were very modest. In Europe, returns were mixed. Listed funds were able to offset some of the heavy losses suffered in 2022, while unlisted funds have corrected in 2023, despite still developing positively in 2022. The United States saw a similar trend, but some funds held managed to produce a positive return this year. In Asia, funds recorded performances close to zero in local currencies in 2023.
On the foreign exchange market, the Swiss franc continued its momentum from 2022, making it the best-performing currency in the G10 in 2023. The yen posted a particularly significant decline against the Swiss franc, explained by the lack of changes to the central bank of Japan’s monetary policy. The US dollar also fell, which was primarily due to the expected development of the interest rate differential between the United States and Switzerland. During this period, the euro continued to weaken against the Swiss franc.
With a performance in Swiss franc terms of 3.1%, gold defied forecasts in a high-interest-rate environment.
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