Credit Suisse investment strategy for April 2023

The Swiss bank's strategists are encouraging the issuance of cyclical and growth stocks.
Credit Suisse strategist Andrew Garthwaite and his team do not view the default of the US bank SVB as a systemic risk, especially since the US authorities guaranteed customer deposits.

The spread between the three-month US interbank rate (forward agreements or FRA) and the Fed's risk-free rate (overnight index swap or OIS), reflecting stress in the banking sector, widened sharply to 60 basis points, but it has since fallen to 38 points (pre-crisis was less than 10 points).

However, the FRA-OIS spread is a far cry from the March 2020 peak of 79 basis points and the financial crisis highs of 165 basis points in September and December 2008.

First of all, the CDS of the largest European and American banks (the price of insurance against the risk of default) do not signal any serious stress for the sector.

Banking stress under control

However, more financial disasters should be expected during the market phase when central banks have moved from quantitative easing (monetary expansion) to quantitative tightening (monetary restriction).

However, we must remain cautious on risk assets as investors once again anticipate the upcoming easing of key rates.

The yield curve inversion (two-year yields higher than 10-year yields) and persistent services inflation raise the risk of a US recession in the first quarter of 2024, which is not reflected in the prices of high-yield private debt (the riskiest).

Credit Suisse is wary of US equities, which are expected to see earnings fall by 10% due to lower margins and volumes.

The risk premium is considered insufficient for the stock and the equilibrium PER is estimated at 16, while risk appetite suggests a strong recovery in activity.

If they're wrong and the Fed cuts its key rate in the next three months, as expected, stocks should fall much lower as usual in six months.

Avoid cyclical papers

They recommend "underweight" non-financial cyclicals. They are "overbought" and have outperformed most since the recession. Their current assessment takes into account the unlikely recovery of activity.

In the stock market, banks suffer in the short term due to the inversion of the yield curve and their strong presence in portfolios.

But European banks are much cheaper than American banks. They will become attractive again if the downturn deepens and earnings are well targeted.

Credit Suisse strategists prefer the Value (discounted) style, which is very cheap compared to the Growth (growth) theme, which is overlaid with rising interest rates.

Source: https://www.lerevenu.com/bourse/bourse-2023-les-experts-de-credit-suisse-recommandent-la-prudence