India, China Open up Avenues for
Investment in Infrastructure & Energy

The Swiss Getting Oriented
to World's Changing Needs
The economy of Switzerland is linked to the movements of global businesses, their ups and downs. This is because, the small landlocked country, tucked high in the Alps, is a major exporter of many things. From high technology machinery to delicious cheese and chocolates, from custom-made watches to pharmaceuticals, you name it, and you have it being exported from Switzerland to all corners of the globe. The emergence of China and India as global economic powers and their future requirements in the fields of infrastructure and energy have opened up immense opportunities for Swiss companies to export technology and machinery in the two key areas of economic growth. Analysts at Credit Suisse, the leading Swiss bank, which is also a global institution, believe that there are opportunities for huge investments in these areas. The election of Minister for Foreign Affairs Micheline Calmy-Rey as Switzerland's new Federal President in 2007, could give the country a new and positive direction on both political and economic fronts. It is just a question of Switzerland getting oriented to changing world needs.

The assessment of the country's economic progress by the Swiss National Bank (SNB) is very relevant here. According to SNB, the global economy remains dynamic but is slowing. Hence the outlook for the Swiss economy is as follows: Exports are likely to continue increasing, but less strongly. In addition, equipment investment is expected to grow further due to the healthy level of capacity utilization. Construction investment, however, will probably ease. The increase in employment will fuel robust growth in consumption. GDP growth in the second quarter of 2006 was 3.0 percent and overall, the SNB forecasts GDP growth of almost 3.0 for the year. Consequently, the economy is progressing faster than its long-term average potential, with a high level of resource utilization. Next year, growth is likely to decline slightly, but should nevertheless remain above potential. An increase in inflation is not to be expected. The average inflation for the year has been pegged at 1.3 percent, which is quite low. On the assumption of an unchanged three-month Libor of 1.75 percent, annual inflation is expected to be around 1.1 percent in 2007 and 1.6 percent in 2008.
A number of special factors whose individual significance is hard to assess are easing the pressure on prices. These include strong competition from new providers in the transition countries and emerging economies of Asia, the latest drop in oil prices, as well as the fact that the Swiss labour market has been opened up to foreign nationals. Overall, the Swiss economy continues to develop favourably. The recovery is broadly based and this is having a positive effect on the labour market.
By raising the target range, the National Bank is further adjusting its monetary policy stance to developments in the economy. With this move, the SNB is ensuring that the inflation outlook remains favourable. Further, the latest movements in money stocks suggest that the inflation outlook for 2008 and 2009 has improved.
As mentioned earlier, the economic outlook for Switzerland is affected by the international environment. For this reason, the SNB's inflation forecast is embedded in a global economic scenario. Two modifications to SNB's earlier assessment of the global economy should be noted. First, growth in the United States is more moderate than the Bank's expectations. Second, the European economy is recovering a little more strongly. For 2007, the outlook remains favourable. However, growth is likely to be somewhat more moderate than in 2006. SNB's modifications to the assumptions on the global economy are relatively minor and have no significant impact on the outlook for inflation.
The SNB expects that the rate of increase in mortgage loans will settle below the current level of 5%. There are already a few indications that the construction sector is softening. The SNB is expecting the real estate market to settle down, although it continues to keep a careful eye on developments.

India & China
Analysts at Credit Suisse recommend investing in selected megatrends since they are likely to play a key role in the medium term. They see good investment opportunities in the infrastructure and alternative energy sectors. Global population growth and the increasing economic participation of countries like China and India that only recently opened their doors to the global economy should further boost demand for infrastructure and energy, which should keep the price of oil at a high level. A sustained high oil price enhances the attractiveness of alternative sources of energy such as solar and wind power. The robust economic growth itself also harbors potential. The boom in emerging market countries has led to a large worldwide increase in the number of affluent individuals, which should benefit private banks in particular. At the same time, luxury goods manufacturers are especially likely to profit from a growing upper-middle class. Changes in underlying political or economic conditions, such as the accession of Romania and Bulgaria to the European Union or as a result of technological advancements, should also give rise to investment opportunities.

Assessment of Credit Suisse
The assessment of the global economy by Credit Suisse, is quite revealing. It says, after temporarily slowing, global economic growth will pick up again noticeably next year. This may be accompanied once more by slightly rising money market rates. At present, though, the financial market situation is still being impacted by economic uncertainties that will also continue to weigh on the US dollar in the short to medium term. However, as US economic prospects brighten, the dollar too should be able to regain steam. Hence, the current uptrend on the equity markets should continue, albeit amid increased volatility. Moreover, growing risk awareness constitutes a good reason to adopt theme-oriented investment strategies.
The experts at Credit Suisse regard equity investments in the infrastructure, energy, water and luxury goods sectors as particularly promising. They also recommend selective strategies for other asset classes such as real estate, commodities and bonds for 2007. Real estate continues to present attractive investment opportunities from both a cyclical and structural perspective. In the corporate bond sector, the analysts at Credit Suisse recommend investment-grade borrowers. Inflation-protected bonds additionally present good entry opportunities.
The global economy has been experiencing a slowdown in growth since mid-2006 that was prompted by the sharp cyclical decline in the US. However, the analysts at Credit Suisse expect the world economy to reaccelerate in summer 2007. For one thing, Europe has developed into a growth pole of the global economy and is benefiting from solid domestic economic expansion. Despite slowing temporarily, average annual economic growth in both the euro zone and Switzerland will come in above potential. Moreover, the robust income situation among consumers and businesses suggests that economic momentum in the US is likely to pick up again after a fairly weak winter.

The New President's Positive Political Outlook
A four-party coalition government rules Switzerland. According to analysts, it will hold on until the next general election in October 2007, despite a greater degree of polarisation between the Swiss People's Party (SVP) on the right and the Social-democratic Party (SP) on the left. The coalition is likely to be renewed after the election. The public finances are improving, and the general government accounts are likely to record surpluses over 2006-08. Analysts point out that SNB's reference rate may be raised, a little further, to 2.25 percent.
The political outlook for Switzerland is also positive. The Federal President in 2007 is Micheline Calmy-Rey, who is also the Minister for Foreign Affairs. Analysts believe the new Swiss President could raise the traditionally low international profile of the country. Criticism by French politicians over the tax provisions provided by Swiss cantons to wealthy foreign individuals have been supplemented by criticism by the SP that the favourable deals are unfair to Swiss taxpayers. This could be an issue at the federal election, but it is unlikely that powers will be taken away from the cantons.