Swiss Market: Storm clouds gathering – warning signs

The Swiss stock exchange has been flat so far in 2018, the leading index SMI has fallen by 6.3 percent and the SPI by around 2 percent, only!

However, there are fears that things may get worse. Both the magazine CASH and the Zürcher Kantonalbank have looked at how the number and quality of IPOs and the stock market development in Switzerland are historically related, and the strong correlations of how an above-average number of IPOs being unsuccessful can be an indicator of stock market corrections. They point out that this trend was obvious in 1986, 1987, 2000 and 2007, and 2018 appears to fit this pattern. It is believed that IPOs can say a lot about the future direction of stock markets.

 
The Swiss stock exchange has seen eight IPOs so far this year. For the entire 2007, there were ten. One reason behind so many IPOs in 2018 could be the forecast of an impending bear market prompting companies to go public while things are good. Unfortunately of the eight newly listed shares, six are now in the red, and in some cases in the extreme red.

In the last weeks, the industrial group Oerlikon has canceled the IPO of its transmission division Graziano Fairfield. The given reason was “uncertainty in the markets”. Similar reasons were behind IPO cancellations of HNA subsidiaries Swissport and Gategroup.

Obviously it would be somewhat far-fetched to predict a crash due to the accumulation of unsuccessful IPOs, however, this is accompanied by several other signs that can be interpreted as a warning to the stock market, such as:

• uncertain on the financial markets
• Swiss stock exchange does not move from the spot.
• Disengaged investors
• Increased volatility and tariff disputes between the US and various countries are deterring investors.
• A number of high level scandals indicating poor governance and lack of transparency have devalued the image of, and trust in the Swiss market.