Return to growth
Rising interest rates and galloping inflation have thoroughly unsettled consumers over the last year. This threatening combination also sometimes caused the economy to slow down. In Switzerland the growth in gross domestic product (GDP) halved to 2.1% in 2022, while in the USA the rate of expansion fell to the Swiss level after reaching almost 6% the previous year. Following a weak first six months, however, the graph started to head up again, and the upturn is gaining strength this year too. Although the overseas economy grew by only 1.1% at the start of 2023, the second quarter saw an annualised growth rate of 2.4%, exceeding the average expectations of economists. The domestic economy has put in a strong start to the year, causing the Swiss State Secretariat for Economic Affairs (SECO) to confirm its growth target of 1.1% for 2023 and forecast an acceleration to 1.5% in 2024.
Inflation on the retreat
The positive growth figures go hand in hand with an all-clear on the inflation front. The rate of increase in the price of goods and services in the US fell in June to its lowest level in more than two years. Consumer prices climbed by only 3.0% compared with the previous year, the smallest rise since March 2021. In Switzerland prices are actually falling again, the national consumer price index slipping 0.1% in July compared with the previous month. The Federal Office for Statistics calculated year-on-year inflation at 1.6%. In the eurozone, too, the graph is pointing downwards: last month inflation decreased to 5.3%, having reached 10.6% at its peak in October 2022. Furthermore, according to provisional estimates the economy in the currency zone as a whole also grew at a faster than expected 0.3% in the second quarter.
Tourism as an economic factor
Although Germany, Europe's largest economy, is still showing signs of weakness, southern European states especially are returning to growth. One of the reasons for this is tourism. According to UNWTO data, for instance, southern Europe rebounded to its pre-pandemic level at the start of the year. It is not only the old continent that is seeing greater bookings, though: the itch to travel is increasing across the world. Last year a little over 960 million tourists travelled abroad, which means that two-thirds of the pre-coronavirus figure has already been regained. Overall, international arrivals in the first quarter of 2023 came to 80% of the level before the outbreak of the virus. At 235 million, the number of tourists was more than twice as high as in the same period of 2022. “The start of the year has shown again tourism's unique ability to bounce back,” stated UNWTO Secretary-General Zurab Pololikashvili, adding: “In many places, we are close to or even above pre-pandemic levels of arrivals.” Receipts from international tourism grew back to hit the USDtn 1 mark in 2022, with Europe accounting for the largest share at nearly USDbn 550.
Bullish share prices
Many sectors are profiting from the recovery in tourism, including airlines, aircraft manufacturers, hotels and even the entertainment and cruise industry. Share prices in the last of these sectors have metaphorically gone through the roof this year. Cruise ship giants Royal Caribbean and Carnival, for instance, have posted three-figure percentage gains since the turn of the year. Shares in aircraft manufacturers Airbus and Boeing, though, have also appreciated markedly so far in 2023 thanks to flourishing business. In the first half of the year, for example, Boeing took in orders for a good 1,000 aircraft, almost four times as many as in the same period the previous year. The two rivals also managed to beat expectations with their sales and earnings figures for the second quarter. Another positive development is that Boeing CEO Dave Calhoun is looking to ramp up production of its bestselling 737 MAX to 38 machines a month, 7 more than previously, in light of the global recovery in aviation traffic.
Economic winners in one package: Tracker on the Swissquote Recovery Index
A wide range of companies are profiting from the economic revival. As already revealed, the tourism sector is well out in front. Not only have the end of the coronavirus pandemic and fuller wallets thanks to pay increases given wings to the travel bug, but there is also a little more loose change for a hot drink or burger every now and then, which the renowned coffee shop chain Starbucks and KFC owner Yum!Brands are happy to provide. The after-work beer is also returning to popularity with rising incomes and greater confidence in the economy, something which is causing the tills to ring again for Wetherspoon, the British pub chain that also owns some hotels. On the subject of hotels, leading global names such as Hilton and Marriott are enjoying higher reservations in line with the recovery. Both companies managed to exceed Wall Street expectations for sales and profit estimates in the second quarter and also raised their outlooks for the year as a whole. The same was true of Booking Holding, the operator of online travel portals.
The economic rebound is also causing shares in the corresponding companies to soar in value. The share price of Booking Holdings climbed by more than half in 2023 and has just reached an all-time high. Hotel chain Marriott achieved a remarkable increase of slightly more than one third, likewise setting a new record recently. Stock of budget airline Ryanair similarly grew by a little over 30%. Even the share price of Hungarian Wizz Air rose by a quarter in the wake of operational successes. Not only did the airline post a new passenger record last year, but the group also flew back into profit. It would truly be a mammoth task for investors to keep an eye on all the shares that gain from an improvement in the economy. That is something investors do not even have to consider, though, thanks to the solution by the name of the Swissquote Recovery Index. The actively managed barometer is currently made up of 32 components, including all the companies mentioned in the text so far.
On a sector view, the tone of the Swissquote Recovery Index is set by the aviation industry. This sector currently contains eleven companies of the barometer which together add up to one third of the index weighting. If cruise providers, hotels and booking platforms are added, the tourism sector accounts for almost half the benchmark. The absolute heavyweight, however, is Madison Square Garden Sports from the entertainment industry. This is a professional sports company which owns teams such as the New York Knicks in the National Basketball Association (NBA) and the Rangers of the National Hockey League (NHL). The strategy barometer is also broadly positioned in the entertainment sector. The index includes, for instance, leisure and theme park operator SeaWorld Parks & Entertainment, film exhibitor Cinemark Holdings and Dave & Buster’s, an owner of video game arcades and bowling alleys. Strayer Education is the stock with the highest weighting at 6.2%. The company specialises in educational services and also owns its own private university.
Outperformers for the portfolio
Leonteq’s tracker on the diversified Swissquote Recovery Index offers investors convenient and low-cost access to a large number of international companies that profit from an economic upturn. The active approach ensures that the composition can always be adjusted to the latest developments on the market. To that end the index is reviewed quarterly by the experts and adjusted where necessary. The costs incurred for this come to a moderate 0.85% p.a. So far the strategy has paid off: in the current year the certificate on the Swissquote Recovery Index has climbed more than 11%, while the SMI has posted a rise of only around 3%.
Source: Swissquote, as at: 07.08.2023
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