The latest reading of the Global Financial Centers Index shows a decline in Zurich's rating among the 110 locations surveyed. Switzerland appears to be losing ground as a financial centre in relation to Singapore and Dubai, among others. It is possible that the current problems in the banking sector, linked to the takeover of Credit Suisse by UBS, could have the effect of reducing the competitiveness of the Western world in favour of the East. What impact could this have on Switzerland?
Global Financial Centers Index
The Global Financial Centres Index (GFCI) is an authoritative assessment of the competitiveness and strength of financial centres around the world. The index was developed by the consulting firm Z/Yen Group in 2007 and has been published regularly every six months since then.
The GFCI is based on surveys of the financial industry, experts and financial institutions around the world. Survey respondents rate various aspects of the business environment in their cities, such as political stability, financial regulation, quality of infrastructure, availability of capital, labour market, culture and lifestyle.
The index currently covers more than 100 cities around the world, and a list of the most important financial centres is compiled. The GFCI is used as a tool to compare different cities from the point of view of attractiveness for the financial industry, which could help in making decisions about business location or financial investment.
Five main areas of competitiveness were used in the analysis: business environment, human capital, infrastructure, financial sector development and reputation. Switzerland is also losing its attractiveness as a business centre, as McKinsey shows. The study suggests that Switzerland has missed out on relocation opportunities for large multinational companies such as Apple, Amazon, Alibaba, Facebook, Netflix, LinkedIn, Airbnb, Starbucks, Tesla and Uber, with only 5% of the top 250 Chinese companies choosing the Alpine country as the location for their European headquarters. In the long term, this could have a negative impact on the listing of the Ishares Msci Switzerland ETF (EWL).
Source: Conotoxia MT5, EWL, Daily
Will big corporations bypass Switzerland?
The 2019 study. "Reinforcing Switzerland's attractiveness to multinationals" focused on Switzerland's attractiveness as a location for multinational corporations. The location, traditionally seen as optimal for foreign corporations, seems to have lost ground in recent years compared to other locations. The study focused on interviewing more than 100 managing directors of multinational corporations to explore their views on the attractiveness of Switzerland as a location for their companies.
The study found that foreign corporations play a key role in the Swiss economy, contributing to more than a third of Swiss GDP, 1.3 million jobs and almost half of Swiss corporate tax revenues. Furthermore, these corporations typically create jobs in high-productivity sectors, which has a significant impact on Swiss productivity.
Despite everything, UBS is reviving?
After the takeover of Credit Suisse by UBS, the situation in the European banking sector seemed to have calmed down, but in the same week there were reports of a growing threat of Deutsche Bank's insolvency. Nevertheless, since the beginning of the week, UBS shares seem to have stopped losing value.
Source: Conotoxia MT5, UBSGroup. Daily
In the face of growing problems in the banking sector and global inflation, the question is whether the Western world can lose its dominance of the financial sphere to the East. In recent years, Asian economies, including China, have been growing significantly, which has attracted the attention of investors from around the world. Alongside this, authorities in China and other Asian countries are taking steps to consolidate their influence in the global financial market, for example by developing financial infrastructure and investing in the technology sector.
However, this is still only theory and much depends on how Western countries respond to the challenges of inflation and the banking sector. The right decisions and actions could help to maintain dominance over the financial segment.
Grzegorz Dróżdż, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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