Swiss equities continued their positive trend on Tuesday, underscoring the optimistic market sentiment sparked by China's announcement of a new stimulus package aimed at invigorating its economy. As a direct result of this news, the Swiss Market Index recorded a 0.70% increase by the conclusion of the trading day. Turning to the economic landscape, the Federal Finance Administration of Switzerland has projected that the financial outlook for various governmental levels will present significant variances up to the year 2028.
Specifically, social security funds are anticipated to sustain surpluses throughout the entire forecasting period. In contrast, cantons are expected to achieve financial surpluses starting in 2025. Conversely, the confederation and municipalities are likely to face structural deficits continuously during this timeframe.
Notably, the net debt ratio for the general government is projected to reduce from 16.2% in 2023 to 13.9% in 2028, a change largely attributed to anticipated economic growth in Switzerland. On the international front, China's central bank disclosed a comprehensive package of monetary policy stimulus measures, which includes key interest rate cuts and a reduction in the reserve requirement ratio for large banks.
This strategic move is aimed at revitalizing China’s position as the world’s second-largest economy. Market analysts at RBC Capital Markets highlighted, "We expect stocks across our coverage to react positively to China's easing monetary policy conditions. Particularly, our luxury coverage, which reveals an average revenue exposure of 27%, stands to gain significantly, with Swatch Group, Burberry, and Richemont being the most affected by these changes." They believe that the luxury sector may be nearing the bottom of its current cycle, a potential turning point that could manifest in the next 3-6 months, likely towards the end of 2024 or early 2025, provided that China’s luxury demand trends do not deteriorate further. In the trading session, Swiss watch and jewelry manufacturer The Swatch Group saw a rise of 1.92%, while luxury goods group Compagnie Financière Richemont experienced a notable increase of 4.08% by market close. In other corporate developments, Swiss travel retailer Avolta reported a gain of 3.29% after unveiling plans to acquire Free Duty, a border travel retail operator, from the Hong Kong-based conglomerate NWS.
This strategic acquisition is set to strengthen Avolta’s foothold in the Asia Pacific region, increase its revenue, and accelerate its Destination 2027 strategy aimed at enhancing its operational capabilities within this key market..