The recent volatility in global stock markets has shaken investors’ nerves. The retaliatory tariffs introduced by Donald Trump have unsettled market participants and led to significant corrections in some cases. In such a challenging environment, more risk-averse investors may feel a growing need to protect themselves primarily against further declines. For this purpose, capital protection notes could be the right tool.
Trump’s Tariff Hammer Strikes – Or Does It?
Donald Trump’s announcement of global tariffs on imports caused anxiety in the stock markets. As a result, leading stock indices saw significant losses in value. Asian markets were hit particularly hard: the Hang Seng Index in Hong Kong experienced its largest single-day percentage drop since the 1997 crash (South China Morning Post, April 7, 2025). The collapse wiped out a staggering USD 10 trillion from the total market capitalization of the U.S. benchmark index, the S&P® 500, over the two trading days of April 4 and 5 (The Economic Times, April 9, 2025).
Market Impact
The CBOE® Volatility Index (VIX) climbed to its highest level since the COVID crash in 2020. Prediction markets now estimate the likelihood of a U.S. recession at over 60 percent – a steep rise from just 24 percent at the beginning of the year (FuW, April 8, 2025). Sentiment among consumers and businesses has notably deteriorated.
The new U.S. tariffs are also affecting Switzerland: Swiss export goods are now subject to a higher import tariff rate of 31 percent. Export-heavy industries such as mechanical engineering, medical technology, and the watchmaking sector are particularly impacted.
After initial relief, it now appears that the pharmaceutical sector is also affected by the import tariffs. On April 9, 2025, Donald Trump announced new tariffs on pharmaceutical products (cash.ch, April 9, 2025). This is especially painful for Switzerland, as roughly half of its goods exports to the U.S. come from this sector – a burden that is also weighing on the share prices of Swiss pharma giants.
Positioning in a Challenging Environment
While these developments resemble past crises like the COVID-19 crash in March 2020 or the 2008 financial crisis, they differ in one key aspect: the current market disruption was not triggered by exogenous shocks but rather by a deliberate escalation of economic policy. Commentators are referring to it as a “politically induced” crash. At the same time, the yield on 10-year U.S. Treasury bonds recently climbed above 4.5 percent, reflecting growing doubts about the fiscal sustainability of the U.S.
Donald Trump has since partially backtracked, announcing a 90-day “tariff pause", a move that briefly calmed the markets. However, the political and economic environment remains highly unpredictable. While institutional investors may react tactically, retail investors often find it difficult to time their entry or exit in such volatile times.
In such an environment, the desire for additional safety may grow among investors. Capital protection notes can offer an approach to limit potential losses while retaining a certain return potential.
How Do Capital Protection Notes Work?
Depending on the structure, capital protection notes offer a guaranteed minimum repayment at maturity – typically between 90 and 100 percent of the capital invested. At the same time, they allow investors to participate in the positive performance of an underlying asset, such as a stock index like the SMI® or DAX®. The participation rate depends, among other things, on the chosen protection level: the higher the protection, the lower the participation in price gains tends to be.
For example, a product with 100 percent capital protection and 75 percent participation in the Swiss Market Index (SMI®) would pay out 115 percent of its issue price after two years if the index rises by 20 percent – consisting of the 100 percent capital protection and 15 percent participation. If the index falls, the investor still receives their invested capital back, thus achieving a better performance than with a direct investment.
Various Versions for Different Risk Profiles
In addition to the classic capital protection note with participation, there are other variants: capped certificates (limiting participation), those with coupons (fixed or conditional payments during the term), or barrier certificates (loss of participation if a price level is breached). These products enable investors to tailor their investment strategy based on their market expectations and risk profile. The popular capped variant, for instance, typically offers a higher participation rate, although performance is limited by the built-in cap.
Capital protection notes are no miracle cure – they are also subject to price fluctuations during their term, and issuer risk remains. However, for those looking to invest with limited risk, this product category offers an interesting alternative to direct investments, especially in turbulent market phases. For investors currently seeking the highest possible level of safety for their invested capital without completely foregoing return opportunities, capital protection notes may be the right tool.