Investors are increasingly turning to Swiss stocks in anticipation of a potential outperformance compared to their counterparts, driven in part by a shift in central bank policy that could further weaken the Swiss franc from its multi-year highs in 2023.
Analysts suggest that while the current quarter may remain challenging for exporters due to the persistently strong franc, expectations of a change in currency dynamics are already shaping market sentiment.
Recent data from Morningstar Direct reveals significant net inflows into Swiss-domiciled funds, indicating growing investor confidence. Additionally, the main Swiss index (SMI) has rallied, matching the gains of Europe’s STOXX 600 index so far this year, after lagging behind in 2023 due to currency-related challenges.
Currency fluctuations have been a major factor affecting Swiss companies, especially as many generate substantial revenues abroad but report earnings and incur costs in francs. The franc’s strength against major currencies, particularly the euro and the dollar, has impacted profitability, with companies like Roche and Swatch citing currency effects on their earnings.
However, there are signs of a potential turnaround as the franc has slightly weakened against major currencies in 2024. Analysts point to factors such as reduced global tensions and evolving central bank policies, particularly that of the Swiss National Bank (SNB), which is increasingly concerned about the impact of currency strength on exporters.
The SNB’s potential shift in focus from boosting the franc to curbing its appreciation could provide relief for Swiss companies. A weaker franc would enhance the competitiveness of exporters and boost the appeal of Swiss equities, particularly in defensive sectors such as pharmaceuticals and food, which are less sensitive to economic cycles.
Analysts at Kepler Cheuvreux have upgraded Swiss stocks, citing their resilience and potential benefits from a weaker franc. Moreover, expectations of a slowdown in global growth further favor defensive sectors, contributing to positive outlooks for Swiss equities.
Bank of America European equity strategist Andreas Bruckner anticipates Swiss stocks to outperform European counterparts by 8% by the end of 2024, reflecting the growing attractiveness of Swiss equities among investors seeking stability and resilience amidst evolving market dynamics.
