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Swiss Stock Exchange and other European Economic Schedule in 2019

The Swiss Market Index (SMI), which includes the 20 main stocks of the Swiss Stock Exchange, has recorded a 17.6% performance since the beginning of 2019. 

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European stock exchanges can no longer offer trading in Swiss equities
Since 1 January 2019, Swiss equities have significantly outperformed other European markets. As of August 15, 2019, the Swiss Market Index (SMI) is up 17.6% according to a study by Indosuez Wealth Management analyst Florence Chernyak-Bosson.

Among the other main European indices, the CAC 40 posted the second best performance with a total return of 13.9%, followed by the FTSE of the Milan Stock Exchange with 13.4%. Far behind, we find the OMX Stockholm Stock Exchange (+ 9.8%), the "Footsie" British (+ 8.7%), the German Dax (+ 8.1%) and IBEX 35 of the Madrid Stock Exchange (+ 2.6%), while the Euro Stoxx 50 and Stoxx Europe 500 indices posted negative performances, with declines of 5.2% and 5.1% respectively.

At the level of the SLI (the "Swiss Leader Index") which groups the 30 largest Swiss capitalizations, no value can have a weighting higher than 9% of the index.

Several structural forces

For Florence Chernyak-Bosson, this exceptional performance of Swiss equities is due to the fact that they "benefit from several" structural "forces".

First, the market's composition is geared towards quality equities, a factor that tends to reduce downside risks in the event of market turbulence, while allowing upside participation," notes the analyst.

In addition, "Swiss equities compare favorably with Swiss bonds for investors in Swiss francs, especially in the current interest rate environment, which is lower than ever," says Florence-Chernyak-Bosson, who is developing.

The yield on the 10-year Swiss Confederation bonds (issued by the Swiss National Bank) is currently at -1.1%, while the dividend yield of the SMI index is 3.4%

The Swiss franc, a safe haven

Another advantage of Swiss equities for European investors is exposure to the Swiss franc. In fact, "as the Swiss franc tends to appreciate during the equity market correction period, this exposure offers a certain safety net," says the analyst at Indosuez Wealth Management. "For example, in 2018, the SMI index was down 7% (" total return "calculated in CHF) against -11.8% and -10.7% for the Stoxx Europe 600 index (both in EUR Measured in euros, the decline in the Swiss market was limited to -3.4%, while exposure in Swiss francs was also positive in 2001, 2002, 2008 and 2011, all years marked by a strong market correction.  

However, Chernyak-Bosson recalls that this phenomenon is a double-edged sword, with a prolonged rise in CHF ending up damaging the earnings of Swiss companies, which are mainly exporting companies.

The aforementioned benefits translate into a higher valuation of Swiss equities, the analyst also notes. Since 2009, the ratio of the multiple Swiss stock prices to the Stoxx 600 index has been between 1 and 1.2, with a peak of 1.3 in September 2011.

Currently, the price-to-earnings ratio of SMI is 16.4 times 2019 earnings, compared to 14 times for the Stoxx Europe 600 Index, so the ratio of these two multiples now stands at 1.17 ". In other words, the valuation premium of Swiss equities is 17% higher than that of Stoxx Europe 600, and Florence Chernyak-Bosson believes that this valuation premium "could remain high in the months to come, especially if the turbulence persists on the markets.