Bloomberg News

Swiss Stocks Rise on Boehner’s U.S Budget Remark

November 28, 2012

Swiss stocks rose, led by Nestle (NESN) SA, as U.S. Speaker of the House John Boehner said he is optimistic budget talks with President Barack Obama will continue.

Swiss Life Holding AG (SLHN) dropped 1 percent after writing down the value of its German brokerage by more than analysts had estimated. Gategroup Holding AG fell 2.2 percent as Helvea AG cut its rating on the stock. Nestle, which accounts for 24 percent of the Swiss Market Index (SMI) by weight, rose 1.2 percent.

The benchmark SMI advanced 0.7 percent to 6,756.48 at the close in Zurich, the highest since Oct. 18. The gauge has rallied 18 percent from this year’s low on June 4 as European Central Bank policy makers agreed on an unlimited bond-buying plan and the Federal Reserve announced a third round of quantitative easing. The Swiss Performance Index gained 0.6 percent today.

“It seems the overhang still remains the fiscal cliff,” said Serge Berger, a Zurich-based trader at Blue Oak Advisors LLC. “One day someone says something negative and markets tank; today Boehner whistles something positive and markets climb. Lots of people are expecting an agreement at the last minute, but traders will remain nervous.”

The volume of shares changing hands on the SMI was 15 percent lower than the average of the last 30 days, according to data compiled by Bloomberg.

Fiscal Cliff

The Standard & Poor’s 500 Index (SPX) in the U.S. slid 0.5 percent yesterday after Senate Majority Leader Harry Reid said Democrats and Republicans have made little progress in negotiations over how to avoid a package of deficit-cutting measures from coming into force at the beginning of 2013.

Reid, speaking to reporters in Washington, said that following a Nov. 16 White House meeting, Republicans backed away from their openness to considering new tax revenue as part of a deal to prevent $607 billion of automatic tax increases and spending reductions taking effect in January.

Equities extended gains as Republican Representative Boehner told reporters he’s optimistic talks will continue. Obama will meet with business leaders today and have lunch with election opponent Mitt Romney tomorrow as lawmakers debate ways to avert $607 billion in tax increases and spending cuts that will kick in next year if a deal isn’t reached.

A report at 10 a.m. in Washington may show that sales of new houses in the U.S. rose to a 390,000 annual pace in October, up from 389,000 in September, according to the median forecast of 74 economists in a Bloomberg News survey.

Swiss Life declined 1 percent to 124 Swiss francs, paring its rally this year to 44 percent. Switzerland’s biggest life insurer wrote down the value of its German brokerage AWD Holding AG by 576 million francs ($617 million), exceeding the 463 million-franc average analyst estimate.

Swiss Life

The company lowered its targeted return on equity to between 8 percent and 10 percent over the next three years. It had forecast a range of 10 percent to 12 percent. The Zurich- based insurer predicted “reduced net profit in the double-digit millions” for 2012. Swiss Life projected it will make cost savings of 130 million francs to 160 million francs over the next three years.

“We suspect the cost savings will disappoint some of the bulls of the stock,” Richard Burden, an analyst at Credit Suisse Group AG in London, wrote in a note to investors.

Gategroup (GATE) retreated 2.2 percent to 22.65 francs as Helvea downgraded the airline-catering company to neutral from accumulate, meaning that investors should not add to their holdings. The brokerage cited weakening “quality” of earnings and a “more difficult environment ahead.”

Orascom Slides

Orascom Development Holding AG (ODHN) slumped 5.1 percent to 13.05 francs, the lowest in 11 months, after the hotel builder said it will report a third-quarter loss of as much 35 million francs.

Orascom Development said late yesterday that it will report a loss because of extraordinary non-cash items such as provisions for investments and transaction losses. The company announced on Nov. 23 that it would delay its Nov. 29 results presentation by one week until Dec. 6 as management needed to review numbers and data.

Nestle increased 1.2 percent to 60.60 francs. The world’s biggest food company and Hutchison China MediTech Ltd., the drugmaker controlled by Hong Kong billionaire Li Ka-shing, agreed to form an alliance to develop gastro-intestinal treatments based on traditional Chinese medicines.

Nestle Health Science and Chi-Med will each own half of Nutrition Science Partners Ltd., the companies said.

Sika AG (SIK) climbed 1.7 percent to 2,011 francs after MainFirst Bank AG raised the world’s largest maker of chemicals used in construction to outperform from neutral, meaning that investors should buy the stock.

“We are expecting Sika’s growth momentum to again improve, helped by both a reviving infrastructure market in China and an increasing penetration in the developing markets,” Bernd Pomrehn, an analyst at MainFirst, wrote. “At the same time, margins are at an upward trend, driven by price increases, stagnating raw-material costs, cost synergies with acquired businesses and an improving business mix.”

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Corinne Gretler in Zurich at cgretler1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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