A look back at geopolitics, monetary policy and the economy
In 2024, the conflicts in Ukraine and the Middle East remained broadly unchanged. High key interest rates successfully combated inflation, especially in the first half of the year, which later enabled interest rates to be cut worldwide. The election of Donald Trump as the next President of the United States had a profound impact on the financial markets in the fourth quarter of 2024 and caused a stir around the world, as many of the promises announced during his campaign will have potentially far-reaching implications for international politics, the economy and the environment.
The US economy performed better than expected in 2024, with the tax relief announced by President Trump leading to a moderate stock market rally. On the other hand, the announcement of tariffs increased inflation expectations, which is why the Federal Reserve did not consider making any further cuts to key interest rates.
China officially achieved its growth target of 5%. However, both foreign investments – as a result of supply bottlenecks during the COVID-19 lockdowns – and consumer sentiment, which is suffering due to the real estate crisis, remain at a low level. Things are further complicated by the fact that the Chinese economy will face addition pressure from the trade restrictions announced by the Trump administration.
In Europe, industrial production remained at pre-pandemic levels due to high electricity prices, interest rates and inventories and the weak domestic market and consumer demand from China. In addition to this, the industrial sector is struggling with fundamental structural problems. Because demand for electric cars has fallen, the automotive industry is facing high CO2 penalties, which is placing an increasing burden on the economy, particularly in Germany.
In Switzerland, weak demand from abroad, particularly Europe and China, put pressure on exports. Although key interest rates were reduced to just 0.5%, economic growth remained low at only 0.8%. This resulted in a per capita decline of -0.2% given the continuing high level of net immigration (83,392).
Interest rate fluctuations and inflation outlooks impacting the bond markets
The bond markets were influenced by expectations of lower inflation rates and, following on from that, the anticipation of interest rate cuts by central banks. The following chart shows inflation data and key interest rates since 2020:
Inflation and key interest rate trends (in %)
The return on ten-year US government bonds rose from 3.9% to 4.6%, which led to a drop in the value of global government bonds. However, these figures do not reflect the fact that US interest rates fluctuated significantly over the course of the year.
Ten-year Swiss government bonds, known as Swiss Confederation bonds, were once again in high demand in the reporting year as a “safe haven”. Yields decreased from 0.7% to 0.3%, which resulted in an increase in the values of the bonds in Swiss francs, leading to a very good performance. The following chart shows the trend in yields on ten-year government bonds since 2014:
Yields on ten-year government bonds (in %)
AI hype, currency movements and sector differences dominate the year for equities
Performance in the equity markets varied considerably. Artificial intelligence gave a number of equities a real boost, and the Magnificent Seven tech stocks (Apple, Mi-crosoft, Alphabet, Amazon, Nvidia, Tesla and Meta) were the main performance drivers for the MSCI World. However, equity markets experienced major turmoil worldwide at the beginning of August. The trigger for this was the combination of the Japanese yen appreciating significantly against the US dollar by +7.3% in July and the unexpected an-nouncement by the Bank of Japan that it would be raising interest rates from 0.1% to 0.25%. This led to an almost panic-like selling of Japanese equities and the closure of loans in Japanese yen, as the low money market interest rates made the yen very attrac-tive for carry trades. Borrowing in yen was therefore used to invest in assets that promise higher interest rates or returns. Within a week, the markets had mostly recovered from this upheaval.
Global equities also performed well in 2024. Following a strong year in 2023, the MSCI World ex CH ESG Universal hedged achieved an impressive performance of 16.65%.
The Swiss equity market, measured by the Swiss Performance Index, is dominated by the healthcare, food, industrial and financial sectors, which together account for just under 90%. Since the technology sector is poorly represented in the Swiss market with a share of around 1%, the index was unable to benefit from the boom in artificial intelli-gence and posted a performance of 6.18% during the reporting period.
Residential real estate continues to grow – quality remains crucial in the commercial segment
2024 brought a noticeable sense of dynamism to the Swiss real estate market. There was a tendency for properties in the residential sector to appreciate in value; real estate in urban centres and their agglomerations benefited in particular from the sustained high level of demand for housing, while growth in the peripheral areas was more sluggish. The Swiss real estate market also benefited from cuts made to the key interest rate by the Swiss National Bank. In prime locations, initial returns of just under 2.0% (net, real) were being recorded again. At the same time, however, growing regulatory hurdles in construction and increasing tenant protection initiatives created a higher risk potential.
Commercial real estate continued to be viewed critically in 2024. The value of real estate in prime locations and with high build quality remained stable, but buildings with site or quality deficits continued to lose value, albeit less sharply than in the previous year. Commercial spaces were still available to let. In prime locations, demand was high and vacancy rates fell, while in less-sought-after locations, above-average construction quality was important to avoid long periods of vacancy.