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The market at a glance: Harder, better, faster, stronger
Good things, as they say, come in threes. This has proven true once again as we witnessed January and February's success streak gracefully extend into March, marking another month of promising returns for our investors. But what drives this consistent positive trend, and what insights can we glean from the recent developments? This is what we try to decipher in this issue of our newsletter.
Then, in our 'Demystification Room' section, we explore a darker topic: the currency exchange black markets. Amandine Soudeille, Alpian's Portfolio Manager, just back from her Argentine adventure, explains the reasons behind the existence of this black market and shares her strategies for navigating it.
Finally, we want to introduce you to our newest community, the SHEWEALTH Collective, with content designed for the cosmopolitan lifestyle and, moreover, a place to connect with others!
Happy reading!
The market at a glance: Harder, Better, Faster, Stronger
If you're feeling overwhelmed trying to keep up with financial market news or unsure about which investment opportunities to explore these days, don't worry—you're not alone.
March has left us all feeling a bit exhilarated. That's why, for this month's highlight, I've chosen to spotlight a classic house track. Released in 2001 and drawing inspiration from a 1979 track by Edwin Birdsong, Daft Punk's "Harder, Better, Faster, Stronger" went viral and later won a Grammy Award. Whenever I play this song, it feels like I'm trapped in a washing machine on a fast cycle. Nonetheless, it's a rejuvenating experience, and if you feel this song has not aged well, I recommend checking out a more recent cover by Pomplamoose.
Harder? Our money certainly worked harder this month. Faster? The Swiss National Bank took us by surprise by initiating a rate cut. Stronger? indeed, most asset classes participated in the rally. Better? Well, that depends on how you look at things.
Before sharing our thoughts on what could come next, let's take a brief look in the rearview mirror.
Key takeaways
As the saying goes, good things come in threes. Following positive performances in January and February, March also proved to be favorable for investors
This month, our investments worked harder, we witnessed stronger market participation, and central bank decisions were faster.
Renewed investor interest combined with increased liquidity helped equity markets achieve new gains
The fixed income markets were influenced by a flurry of central bank decisions and comments.
Commodities joined the celebration, while digital assets experienced an increase in volatility. Bitcoin is catching its breath.
Can investors expect even better returns going forward? Or should we be cautious about the current exuberance?
What happened with equities
As the saying goes, good things come in threes. Following positive performances in January and February, March also proved to be favorable for the equity market.
The first quarter saw global equities (as measured by the MSCI World Index) perform at 8.9%, a figure well above what most experts had forecasted for the entire year. European stock markets continued to lead in March (+4.2%), followed by US (+3.1%) and Japanese equities (+2.6%). Swiss equities however followed their stately progression and Emerging markets equities only recently turned positive.
What’s driving this rally? In a system where prices are determined by millions of buyers and sellers, including a significant number of automated systems, it's difficult to narrow down the reasons to a few headlines. However, we can highlight a few factors, that in our view, played an important role:
One significant factor is liquidity. Liquidity is a catch-all term that refers to all the cash and credit available to financial markets. It's largely influenced by central banks, which, by setting interest rates, make it easier or harder for people to access funds. However, central banks are not the only players influencing liquidity; banks, households, and corporations also play a part. What we’ve observed in recent months is an overall improvement in financial conditions. This generally leads to higher returns if there is an investor's appetite.
This leads us to the second important factor: investors’ appetite. Indeed, investor sentiment has recently improved. The expectation of lower interest rates, combined with positive economic news, has increased confidence.
Of course, liquidity is not the most evenly distributed resource in the world, and investor interest tends to concentrate on the most attractive opportunities. But when liquidity meets interest, it is generally a good outcome for portfolios.
What happened with bonds
This month was not short of action in the fixed income markets, with recent developments driven by a flurry of central bank moves and comments, starting with the Federal Reserve, which left rates unchanged.
While this move was expected—the Fed had made it clear that it is ready to keep rates elevated as long as the specter of inflation is present—investors were trying to read between the lines of the speech delivered by its Chairman, Jerome Powell, to get hints about the coming months. Their hopes were somewhat met as Jerome Powell indicated that the Fed was "not far" from gaining the confidence it needs to cut rates.
Closer to home, the Swiss National Bank (SNB) caught us by surprise by cutting interest rates by 0.25%, marking the first major central bank of a Western industrialized country to reduce rates in the current economic cycle. Has the SNB become a leader in fields setting an example for the rest of the world? It is a bit too much to ask of our central bank, I'm afraid.
The reason for this move can be explained by much simpler reasons:
first, Swiss inflation dropped to 1.2%, and higher prices were not as much of an issue compared to our European neighbors (yes, I know it is hard to believe when we see prices around us, but it is precisely because we live on an "island of high prices" that we are relatively unaffected by inflation);
second, the Swiss National Bank has to deal with the strength of our currency, and this move can relieve a bit of the pressure;
third and last, while most central banks in the world revise their interest rates policy every month, the members of the SNB meet quarterly, so we might see there a sign that it is anticipating the agenda of its neighbors.
While savers won’t be happy about this move (rates on saving accounts are likely to decrease), bondholders are welcoming it (lower rates mean higher prices!).
Finally, the Central Bank of Japan made a historic move by raising rates for the first time since 2007. The Bank of Japan was the last central bank in the world to have negative interest rates. I am sure Japanese savers, like us, won’t miss this period.
What happened with commodities, currencies, and digital assets
The mood of Daft Punk’s song seemed to have permeated the commodity markets as well. From oil to gold, many commodities experienced a rise in prices.
As usual, when commodity prices rise, investors ponder whether this is good or bad news. If the increase is due to rising demand, it generally indicates that economies are in good shape. However, if the increase is due to decreasing supply, it's usually a sign of problems somewhere in the world, such as geopolitical tensions, wars, trade restrictions, or natural disasters. This month, the situation was a mix of both.
On the cryptocurrency front, it seemed like the washing machine was set to the spin cycle, with Bitcoin (+15.1%) and most cryptocurrencies ending the month higher, albeit experiencing a lot of ups and downs along the way. After a solid rally since September, it seems Bitcoin needs to catch its breath before moving either higher or lower.
Finally, on the currency side, the Swiss Francs continued to lose ground against the EUR and USD, which could give a boost to foreign investments.
What do we make of this month's developments? Our money worked harder, we witnessed stronger market participation, and central bank decisions were faster. This leads us to wonder: can we expect even better returns going forward?
Well, let’s be honest, while the economic indicators have improved, with inflation pulling back, we consider the current level of market enthusiasm to be somewhat excessive for our taste. It would be surprising not to encounter potential turbulence on the horizon. Our next step will be to secure some profits and adjust our portfolios to take advantage of falling interest rates. However, we prefer to wait for the first signs of declining investor interest before proceeding.
Demystification room: Black Market in foreign exotic currencies trading
Hi there, it's Amandine from Alpian, Portfolio Manager, returning from an extended holiday in Argentina and Latin America. I'm eager to share some FX tips if you're considering a future trip there.
In foreign exchange, especially with less economically developed currencies like the Argentine Peso (ARS), Thai Baht (THB), or Turkish Lira (TRY), a black market arises due to notable differences between official government rates and those offered in informal street markets or local exchanges.
When traveling to such countries, you might find significant differences in currency exchange rates between official banks or card services and unofficial street exchanges. This occurs because governments, often facing high inflation, geopolitical instability or economic sanctions, try to control their currency's value against a benchmark like the US dollar, inadvertently fueling a black market. These informal markets often are more favorable to tourists.
For example: CHFARS was officially 946.34 ARS for 1 CHF on April 3rd, 2024, against over 1200 ARS for 1 CHF on the unofficial exchange.
If you're planning a trip to destinations where currency black markets exist, it's crucial to exercise caution and stay informed. Here are some suggestions for managing currency exchange in such areas:
Research exchange rates: Before traveling, check government-set exchange rates and compare them with black market rates for informed currency exchanges.
Get local advice: Ask locals, hotel staff, or trusted guides about secure currency exchange options for valuable insights.
Consider cash: In countries like Argentina, where bank access is limited, carrying cash and exchanging at reputable desks may offer better rates due to the high demand for stable currencies.
Use cash for local purchases: Banks often charge hefty fees for card transactions, resulting in significant price differences (e.g., 10-20% in Argentina) compared to cash payments at shops.
Join our new community: The SHEWEALTH Collective
Exciting news! Last week marked the grand launch of our latest initiative in collaboration with SmartPurse – the SHEWEALTH Collective. It's a brand-new financial community for the cosmopolitan souls living in Switzerland, both women and men, eager to learn about finances, grow, and connect with other people on the same paths.
Why is this good for you:
Fresh, curated content: Immerse yourself in a world of specially curated financial content, designed to resonate with your cosmopolitan lifestyle. From the latest podcasts to enlightening email courses, everything is at your fingertips – absolutely free.
Connect and grow: This is your opportunity to engage with like-minded individuals who are ready to share, connect, and grow together. We’re planning in person events for the rest of the year and connecting via a growing WhatsApp community to discuss different topics connected to finances and more!
Interested? We invite you to explore our new platform and to join us for the next event.
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