Following on from the coronavirus pandemic, the war in Ukraine is now dragging the economy into renewed crisis. Will prices rise even higher? And are long-term investment strategies still a good idea in such uncertain times? Michael Bänziger, Chief Investment Officer of Generali Switzerland, offers a brief analysis of the current situation.
The prospect of any respite for the world remains a long way off. After two years of Covid-19 lockdowns and the resulting economic and often personal hardship, a war has now started in Europe that is already having far-reaching economic and humanitarian consequences. We see distressing images coming out of Ukraine. A quarter of the country's population is now displaced and the Western world is facing major challenges in many areas as a consequence. Our investment experts at Generali are keeping a very close eye on all these developments.
Economic impact
During the coronavirus crisis, central banks still had various tools and options for shoring up the economy. These prevented more serious repercussions over a longer period of time. However, now that inflation, already at a high level, has been further exacerbated by the war, the central banks appear to have run out of leeway. In the US, this situation has already led to inflation rates rising to over 8%. By comparison, the inflation rate in Switzerland has remained quite moderate at 2.2% (as of 1 April 2022).
One reason for this disparity is the relatively low level of Switzerland’s economic ties with Russia and Ukraine. Compared to the European or American economies, the Swiss economy is less dependent on Russian energy sources. The direct impact on Switzerland is therefore very limited. Nevertheless, marked indirect effects for the Swiss economy are to be expected. These will stem from sharply rising world market prices for exported Russian and Ukrainian goods, such as energy sources, certain basic foods and industrial metals.
What is Generali Switzerland’s investment strategy?
Overall, Generali Switzerland is not affected directly by the developments related to the war in Ukraine. This is because we haven’t made any direct investments in the Russian or Ukrainian markets. The indirect risk via collective investment schemes, involving less than 0.1% of total assets at Generali, is also negligible. We therefore don’t foresee any drastic effects on our financial investment products. Another factor contributing to the stability of our long-term investment models as well as Generali’s own investments is our broad diversification. We achieve this through government and corporate fixed-interest investments as well as by investing in equities, real estate and mortgages.
Where does everything go from here?
Making any forecasts about the future at the moment is ruled by uncertainty. There are many potential scenarios of how the situation could develop over the coming weeks, months and years. But uncertainty itself is a determining factor in any scenario, because every conceivable development carries the risk of serious economic repercussions. Which is precisely why, in our view, it makes sense first and foremost to remain calm and stick to a long-term, well-diversified investment strategy.
Adjusting strategy would only make sense if the risk profile changes drastically. Unless this happens, past experience has shown that successfully picking the right time to buy and sell is rare. It’s better to stick to your strategy – even in a crisis. As the stock market adages typically say: “If you sell too soon you risk missing out on the big winners.”
ABOUT MICHAEL BÄNZIGER
“In times like these, we should not forget the human aspect alongside the economic impact. The economy will recover. But people will never forget what is happening in Ukraine.”
Michael Bänziger, Chief Investment Officer, Generali Switzerland
Michael Bänziger has been at Generali since 2019 and has headed the Investment department as Chief Investment Officer since 2020. Prior to joining Generali, he held various investment roles in Switzerland and abroad. Michael Bänziger holds a business administration degree and is a CFA® charterholder from the CFA Institute.
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