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Bringing you news, views and analysis since 2013

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Switzerland’s challenge is Germany’s opportunity

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The eurozone could soon see full scale quantitative easing, says Robert Smith, Investment Manager of the Baring Asset Management German Growth Trust…

The move yesterday by the Swiss National Bank (SNB) to abandon its policy of keeping the Swiss franc from appreciating against the euro caused the currency to appreciate by more than 30% in early trading before settling at a lower level later in the day. At the same time, the Swiss equity market fell sharply as investors took the view that Swiss exporters would find the appreciating currency a challenge to trading.
 
It is our view that this could be seen as a strong indication that the SNB expects the European Central Bank to launch full-scale quantitative easing in the coming weeks, which would likely be very positive for eurozone equities. It could also be seen as presenting an opportunity for Switzerland’s competitors in the eurozone, which clearly do not face these currency headwinds.
  
As we look across the eurozone economies, we remain particularly optimistic about the prospects for German companies. While Germany has seen some mixed economic data releases, our conversations with company managers, their factory order numbers and the guidance they have provided on future profitability continue to support our positive view of the market.
 
We believe that smaller companies in the German Mittelstand present potentially attractive value and growth opportunities in an environment of improving business conditions and our strategy is positioned accordingly.
 
In the near term, while the general election in Greece may create some uncertainty for European stock markets in January, we do not believe that it will have a detrimental effect to the underlying economic activity in Europe. We therefore remain optimistic for 2015 as a whole even if the year starts on a weak note.
 
Lastly, for Swiss-based investors, investing in Germany, or indeed anywhere else in the eurozone, just became a lot cheaper given the Swiss franc’s appreciation. It may therefore be that these markets start to benefit from increased capital flows.

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