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Derivatives provider Leonteq significantly lowered its profit forecast for the current year on Monday. The reason shown was mainly a lower trading result due to lower market volatility. As a result, the share lost 7 percent of its value and increased its negative value to 11 percent since the beginning of the year.
But Leonteq isn’t the only one facing headwinds: Vacuum valve manufacturer VAT felt compelled to start a short run in Switzerland in mid-June due to the weak business trend. The cyclical correction in the semiconductor sector continues, leading, among other things, to a marked decline in inventories. According to Fabienne Hockenjos, head of investment at Basellandschaftliche Kantonalbank, there is a certain potential for disappointment with semiconductor suppliers such as Comet or VAT.
And just last week, American broker Stifel talked about potential disappointments in the Swiss market in a strategy report reported by cash-Insider. Here, cautious, if not entirely negative, statements can be found, for example, about Clariant, Geberit, Givaudan, Rieter or VAT.
Economic headwind increases
This development is not entirely unexpected: leading indicators (PMI) for the industry are on the decline and have been listed well below the growth threshold of 50 for months. Order intake has also fallen sharply. “In the first quarter of 2023, many companies were still able to benefit from relatively high order business – the pandemic. This effect is now fading. There is also increasing pressure on margins,” Matthias Geissbühler, Investment Manager at Raiffeisen, told cash.ch.
Profit warnings from countries near and far have also generated excitement in recent weeks: the results were burdened by weak demand and rising costs, according to an announcement by US cargo service provider Fedex last Wednesday. And the profit warning from German specialty chemicals company Lanxess has raised concerns about further cuts to the chemical industry. Because the recovery expected by many companies in the second half of the year does not seem to take place, especially in China.
“We’ve seen some profit warnings in recent weeks, but a significant part of the earnings season is ahead,” said Anastassios Frangulidis, chief strategist at Pictet Asset Management and chairman of Multi Asset Switzerland, when asked by cash.ch. A stronger Swiss franc and lower foreign demand from countries such as China and even the US are weighing on profit growth. High interest costs also negatively affected companies with high debt ratios.
Circular companies in focus
Cyclical inventories from industry, chemicals and construction are in particular focus due to the economic downturn – especially if inventory has accumulated significantly in recent years and the focus is foreign demand. “We expect many cyclicals will have to reduce their full-year guidance. Negative surprises can be expected in the construction industry as the slowdown is particularly severe in Europe. Candidates are Geberit, Arbonia, Forbo and Zehnder,” says Geissbühler.
Risk is primarily higher for early-stage companies due to the economic slowdown, according to Beat Pfiffner, vice president of research at Schwyzer Kantonalbank. An example of this is the personnel service provider Adecco. British employment agency Robert Walters, a competitor of Adecco, issued a profit warning on June 14.
According to Geissbühler, Swiss chemical stocks are also under scrutiny, following the big profit warning from German chemical company Lanxess. Clariant and EMS-Chemie felt the headwind. “Clariant is a risk factor in the chemical industry,” says Hockenjos. Medium-term as well as short-term guidance should be questioned. The challenging “Sunliquid” project is also making little progress – thus impairment may occur.
Defense sectors, and finance in particular, are not immune to disappointments
The head of investment at Basellandschaftliche Kantonalbank sees the financing environment as the biggest challenge for pharmaceutical suppliers – especially when it comes to contract manufacturers like Lonza or Bachem. Smaller biotech companies face financial constraints, causing work schedules to be delayed. Bachem senses this, which increases the risk that the guideline will need to be adjusted for the whole year.
But other defense sectors, such as food manufacturers, are not exempt from disappointment: “Because of high inflation, many consumers are switching to cheaper products or reducing their consumption,” Pfiffner warns. Chocolate maker Barry Callebaut, for example, felt the effects, although there were company-specific issues. It remains to be seen whether Barry Callebaut’s new president will lower the medium-term targets.
Leonteq’s profit warning casts a shadow over the Swiss financial sector: the numbers UBS will announce will be exciting. “Integration costs, possible other provisions and a weak M&A and trading business will likely affect the outcome,” says Geissbühler. Market developments play an important role in Vontobel and Julius Baer: when customer activity is low, there is less return. This is why Hockenjos sees “a certain risk of disappointment” in such titles.
Are the semester numbers a turning point?
So far, earnings have been surprisingly strong despite the huge turnaround in interest rates and a weakening economy. Current earnings forecasts point to a “soft landing” of the global economy. But from the perspective of the Raiffeisen investment manager, this is becoming increasingly unrealistic. Accordingly, the profit forecasts are very high. Geissbühler warns, “The release of the half-year figures will likely be a turning point and will lead to earnings revisions.” After the strong first half of the year, corrections are expected in the stock markets in the coming weeks.
After all, the Swiss stock market is a defensive, quality-oriented stock market and should thrive in this environment better than any other stock market. If more profit warnings are issued and the outlook for the year as a whole possibly declines, this will also lead to higher overall volatility and increased risk premiums for German stocks.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
