Swiss bank shares with the greatest potential in 2022

Many investors rely primarily on interest rate developments when it comes to bank stocks. Although it shouldn't be underestimated, it isn't everything that matters when it comes to buying a title. Other aspects are just as important.

The price table of the Swiss stock exchange presented a memorable picture on (yesterday) Thursday: In an overall declining market, there were five financial stocks that were able to stay on the positive side: UBS, Julius Baer, ​​Swiss Re, Credit Suisse and Vontobel . That hasn't been the case for a long time.

The minutes of the US Federal Reserve (Fed) meeting from the previous evening provided the main reason for this curious snapshot. As they showed, some members of the Monetary Policy Committee had advocated starting the reduction of the Fed's balance sheet soon after the first rate hike. This is exactly what sent prices plummeting worldwide – with the exception of financial stocks, which benefit from rising interest rates, since under such conditions banks and insurance companies can increase their earnings in the interest business and also in trading.

Cultural things are still a mess

In the medium term, however, this positive development does not apply to all financial institutions - their business models and, above all, their implementation are too different, as the example of the two major Swiss banks clearly shows.

While Credit Suisse (CS) is dying, despite what is now a valid business model, because culturally there is still a lot to do, UBS has been in enviable shape for some time. This also led to various financial analysts, such as J.P. Morgan or Jefferies, who recommend buying UBS stocks with price targets around CHF 22 – the share was trading at CHF 17.34 on Thursday.

Tips from Oswald Grübel

Of course, it is also possible to invest in CS stocks, as the former CS and later UBS boss Oswald Grübel recommended this week in an interview with the German "Börsen-Zeitung" (article behind Paywall); This is against the background that these securities have (even) greater catch-up potential. Literally, he said: "If there are no further losses and the turnaround shows the first fruits, then the share is a buy."

However, this explanation does not go far enough, since under these premises one could also invest in the battered stocks of the Swiss asset manager GAM. But even that would be risky.

In view of an investor year 2022 that will initially be burdened with many uncertainties, it should be more worthwhile to rely on proven and demonstrably solid bank stocks, especially in Switzerland, where there are many indications that the wheat will be separated from the chaff in the coming months should separate.

Expertise and active investment management are now even more in demand. Both, in turn, will be based on how successful the management of a bank is, whether it is a market leader in its areas of activity, how far it has already progressed digitally and, last but not least, the level of trust it enjoys overall.

Course rockets abroad

Against this background, the shares of UBS, the private bank EFG International, Julius Baer, ​​Graubündner or Luzerner Kantonalbank as well as specialized companies such as Partners Group (private market investments), Swissquote (online banking) or Leonteq (structured products) worth considering. Although some of these stocks have already recorded strong price gains over the past year, their prospects of success are still intact according to the criteria mentioned above, and they are likely to develop more steadily in a volatile environment.

A look abroad shows that certain bank stocks can be very strong regardless of the environment, where the American financial groups in particular made incredible advances in 2021; but also turnaround cases, such as the Italian Unicredit (plus 75 percent in the past year) or the French Société Générale (plus 70 percent) prove that there is definitely money to be made with financial stocks. Many investors also rely heavily on interest rate developments, which should not be underestimated, but which are not all decisive for the purchase of a security. Other aspects are just as important.

Critical Factors

This includes the fact that enormous fortunes have been created worldwide during or as a result of the pandemic, for which the owners are sometimes almost desperately looking for investment opportunities, which in turn stimulates the activity of the financial houses.

The whole development of cryptocurrencies is such an example in several ways. Much in this area is uncertain, opaque and sometimes difficult to understand. But that's exactly why the banks have to deal with it; those who do this more prudently have a competitive advantage.

Massive pent-up demand

The same applies to sustainable investments, about which investors can have mixed opinions; but state regulations alone will mean that sustainably managed companies will fare better in the long term than companies that ignore this trend.

Last year, many investors assumed that global advances in vaccination would lead to a global economic boom or massive pent-up demand; the recent variants of the Covid virus have clouded these hopes. Still, it shouldn't hurt to position yourself early for such a bullish phase, because sooner or later it will come and favor the business of successful banks.

Consolidation coming

Two other factors, which some investors often neglect, are relevant when assessing financial stocks: On the one hand, the consolidation in the banking sector, which has been postponed for a long time - especially in Europe for political reasons - will come sooner rather than later; and at the same time, the relocation of financial center capacities due to digitization and political developments (Brexit) should benefit successful banks.

Both will be reflected in their share prices. In this respect, there is a wide range of indicators which titles could make investors' hearts beat faster in the next 18 months.