Moderate impact of new import tariffs on global portfolios
The US has unexpectedly announced new import tariffs of up to 39% on Swiss products. At the same time, political interference in US labour market statistics is shaking the credibility of economic data. This development is causing uncertainty in the markets – but we see primarily tactical motives in both cases. Due to the uncertain final outcome, combined with our defensive stock selection, we are not making any adjustments to our asset allocation.
What happened?
Due to the large trade deficit1, the US government under President Trump announced new punitive tariffs on selected Swiss exports on Wednesday evening, which will take effect on 7 August. Medical technology, machinery and watchmaking are particularly affected. The tariffs, which are as high as 39%, significantly exceed previous expectations and were announced without prior bilateral warning. At the same time, Trump dismissed Erika McEntarfer, head of the Bureau of Labor Statistics (BLS), on 1 August following a disappointing US labour market report. The US economy had clearly fallen short of expectations with net job growth of only 71,000 in July (consensus: 155,000). In addition, Fed Governor Adriana Kugler announced her resignation effective September, giving Trump the opportunity to appoint someone close to him. This suits him well, as he has been sharply critical of Fed Chairman Powell for months. The market focus is also on quarterly earnings, which have been largely positive so far, especially in the tech sector. Companies with weaker results, such as Amazon, Adidas and Tesla, are being punished immediately.
How have the markets reacted so far?
The stock markets lost only slightly on Friday, with the MSCI World falling by 1.3%, while yields on short-term US government bonds fell significantly in view of increased expectations of interest rate cuts. The US dollar depreciated, while gold and US government bonds gained – classic flight-to-quality behaviour on the part of the investor community. As the Swiss market was closed on the national holiday on 1 August, the Swiss stock market's reaction on Monday morning (-0.7% for the SMI Index) was delayed. It indicates only moderate uncertainty. Export-oriented sectors are under pressure, such as luxury goods (e.g. Swatch -2.2%, Richemont -1.3%) or mechanical and electrical engineering (e.g. ABB -1.5%, OC Oerlikon -3.0%, Logitech -1.0%). These sectors supply significant proportions of their products to the US market and are directly affected by the tariffs – both in terms of their margins and their sales opportunities. The pharmaceutical heavyweights Roche (-2.0%) and Novartis (-0.4%) have been spared the tariff hammer for the time being, but with a 60-day deadline, demands for lower drug prices remain on the table.
How do we assess the situation?
Swiss stock market: Given the pattern of negotiations between the US and its trading partners to date, we expect tariffs in Switzerland to be lower than threatened in the coming weeks. However, tariffs will ultimately be significantly higher than at the beginning of the year (for comparison: tariffs of 15% apply to the EU). In this respect, sectors with strong US exports such as watches (Richemont and Swatch: 4.9% in the SPI) will suffer. For the SMI, however, the separate US demand on the major international pharmaceutical companies (including the US) is much more significant. These companies are expected to submit a proposal to reduce drug prices by the end of September (index weighting of Roche and Novartis: 23% of the SPI). However, the historically low valuation of the global pharmaceutical sector already anticipates an expected decline in prices.
Swiss interest rates, currency and companies: Higher US tariffs could trigger further declines in Swiss franc interest rates and interrupt the appreciation pressure on the Swiss franc, all other things being equal. We would view this as only a short-term event. At the stock level, we are positioned rather defensively: we are underweight in luxury goods and large-cap pharmaceutical stocks and hold mostly specialised companies in the industrial sector in the areas of electrification and automation. We are underweight in the general export industry, which has strong production in Switzerland. By contrast, we favour financial stocks and mid-cap food stocks, as well as companies focused on the domestic market.
Global context: As severe as the US tariffs may seem for Switzerland, additional drivers are currently in focus at the level of a mixed global portfolio. Corporate earnings are on track for annual growth of around 8% in the US, but not all of the Magnificent 7 will be able to maintain this pace. At 1.5%, US economic growth in 2025 will be half as strong as in 2024, although growth in the rest of the world will accelerate. The credibility of the US government is being called into question by upcoming personnel issues, which is reflected in a depreciation of the US dollar. Overall, however, we expect a constructive picture with possible shifts within regions (US to EM), sectors (to pharmaceuticals) and currencies (USD to CHF and gold).
How is our investment strategy performing?
The portfolios lost slightly in absolute terms on Friday. Our biggest preferences are foreign government bonds (which have benefited more than the underweighted CHF bonds), emerging market equities (on a par with developed markets) and gold (+2%). The CHF/USD is volatile but is trending towards our CHF preference. Alternative investments such as insurance-linked strategies, on the other hand, appear unaffected by the Swiss customs hammer.
What adjustments are we making?
For our globally diversified portfolios, US-related drivers such as strong corporate earnings, a weakening economy and the credibility of the government are key factors. In the Swiss equity market, our portfolios are strategy-weighted, combined with defensive stock selection. The export-heavy pharmaceutical sector is not affected by the current tariff threat for the time being. Overall, we see a constructive picture, which we are currently addressing with our regional and sector preferences without any need for tactical changes (see our latest Asset Allocation Update). The biggest risk would be a sharp and abrupt decline in the Swiss franc and a significant fall in bond yields below zero per cent.
1 Switzerland's trade surplus with the US amounts to around CHF 38.7 billion. Exports to the US accounted for 18.6% of Switzerland's total export volume in 2024. Around 70% of this is attributable to gold and pharmaceuticals, which are currently not affected by the new 39% tariff.
