Swiss stocks outperform Europe as investors retreat from AI trade - Bloomberg

Investing.com -- Swiss equities are outperforming their European peers in October as investors shift towards defensive companies amid growing concerns over artificial intelligence valuations, higher borrowing costs and political uncertainty, Bloomberg reported on Saturday.

Switzerland’s benchmark Swiss Market Index (SMI) has gained 4.6% this month, compared with a 3.2% decline in the Euro Stoxx 50, marking its strongest relative performance since March 2020.

The rally has been driven primarily by pharmaceutical companies Roche and Novartis, alongside food giant Nestlé, which collectively represent nearly half the Swiss benchmark’s market capitalisation.

Roche shares have climbed 12% in October, while Novartis has advanced 6.7% and Nestlé has gained 10%. Together, the three companies account for the index’s entire monthly increase.

Investors have increasingly favoured companies with stable earnings, strong balance sheets and limited exposure to economic fluctuations as enthusiasm surrounding AI-related investments weakens.

Damian Burkhardt, head of Swiss equities at EFG Asset Management, told Bloomberg that investors were seeking alternatives to crowded AI positions, reversing an earlier shift away from healthcare stocks.

Bank of America’s latest fund manager survey showed improving sentiment, with a net 16% of respondents identifying Switzerland as their preferred European equity market.

Other Swiss companies have also benefited, including fragrance manufacturer Givaudan and dermatology specialist Galderma, while only four SMI constituents have declined this month.

The recovery follows years of relative underperformance, partly reflecting Switzerland’s limited exposure to technology and energy companies.

Swiss equities have delivered a 69% total return in local currency terms this decade, compared with a doubling of the Euro Stoxx 50.

Bloomberg Intelligence data indicates earnings growth among SMI companies could accelerate to 10% in 2027, supported partly by a weaker Swiss franc benefiting exporters.

However, the rally has pushed Swiss equity valuations to their highest premium over eurozone peers in nearly two years, raising questions about further upside.

Bank J. Safra Sarasin strategist Wolf von Rotberg upgraded Swiss equities to outperform this month, citing favourable currency movements, interest rates and weakening U.S. economic momentum.