Swiss stocks on the top picks list. BRIC markets suffer double. Everything invested in safety.

The euro debt crisis is still the dominant theme on the financial markets, and not merely in Europe. A large US investment firm compiled a list of European companies that would survive a euro crash relatively unscathed. Interestingly, all of them are Swiss companies: Givaudan, Nestlé, Roche, Schindler, and Syngenta. Then again, a euro crash is no longer an issue for the time being, given Greece’s pro-Europe elections.

BRIC downgraded

The first quarter with friendly stock markets was followed by a quarter of losses that practically nullified the gains of the prior quarter. The emerging markets, such as India, China, Brazil, and Southeast Asia were hit particularly hard. Because investments in these regions are usually covered by funds denominated in US dollars, the exchange rate of the dollar versus the respective domestic currencies played a significant role. Due to the euro crisis and the pegging of the franc to the euro, the greenback became a safe haven for international monies. This resulted in a perceptible appreciation of the dollar, particularly relative to the emerging market currencies. Since March, the freely convertible currencies of India (rupee) or Brazil (real) depreciated by 15 to 25 percent (see graph). Consequently, the MSCI BRIC in US dollars lost nearly 20 percent. Despite these setbacks, the economic outlooks of these countries are very bright or, in the case of China, poised to improve as a result of government stimulus programs.

The high price of safety

In recent times, investors have been more cautious than ever before. German and Swiss bonds with negative yields, massive risk premiums for euro countries in the southern periphery, single-digit stock valuations, and record-breaking cash holdings are signs that all point in the same direction: safety. And safety comes with a price: no return or even negative interest. But German bonds in particular are only purportedly safe. The rehabilitation of indebted nations (Greece, Portugal, Ireland, Spain, Italy) is relying ever more heavily on Germany’s pledges. What if these pledges ever have to be redeemed?

Backlog inevitable

Even the slightest détente of the debt crisis will cause a snarl-up of safely parked money in the other direction and trigger massive price hikes on the unnerved stock markets. On the day after the elections in Greece, investors already increased their exposures in stocks to be on the bandwagon for the next rally. Those who dislike short-notice mood swings such as these can now buy quality stocks at bargain prices and hang onto them.  Novartis and Nestlé shares are good picks. Since the downtrend began in mid-March, the two index heavyweights remained firm or, in the case of Novartis, even posted slight gains.