Swiss equities have shown notable strength in October, outperforming their European counterparts as investors increasingly gravitate towards defensive sectors. The Swiss Market Index (SMI) has gained 4.6% this month, contrasting sharply with a 3.2% decline in the Euro Stoxx 50, marking the strongest performance since March 2020, according to Bloomberg.
Leading the rally are major pharmaceutical companies Roche and Novartis, along with food conglomerate Nestlé. Together, these three companies account for nearly half of the SMI’s market capitalization. Roche shares have risen by 12% in October, Novartis has advanced 6.7%, and Nestlé has increased by 10%. Their combined gains have contributed to the SMI’s entire monthly increase.
Investor sentiment has shifted, with a greater preference for companies demonstrating stable earnings and strong balance sheets. Damian Burkhardt, head of Swiss equities at EFG Asset Management, noted that investors are seeking alternatives to crowded positions in AI-related stocks, reviving interest in healthcare equities.
A recent survey by Bank of America revealed improving sentiment among fund managers, with 16% of respondents identifying Switzerland as their preferred market for European equities. Other Swiss firms, including fragrance specialist Givaudan and dermatology company Galderma, have also benefitted this month, with only four SMI constituents experiencing declines.
This recovery comes on the heels of several years of underperformance for Swiss stocks, which are less exposed to technology and energy sectors compared to other markets. Over the decade, Swiss equities have yielded a 69% total return in local currency, outpacing the Euro Stoxx 50’s doubled return.
Looking ahead, analysts from Bloomberg Intelligence project that earnings growth among SMI companies could reach 10% by 2027, aided by a weaker Swiss franc that supports exporters. However, the recent rally has elevated Swiss equity valuations to their highest premium over Eurozone peers in nearly two years, raising questions regarding potential further increases.
In light of these factors, Bank J. Safra Sarasin strategist Wolf von Rotberg upgraded Swiss equities to an outperform rating this month, citing favorable trends in currency, interest rates, and diminishing U.S. economic momentum.
