Investors may find the strong fundamentals and stable economic, political and social aspects of Switzerland attractive in terms of equity investments in a year which may be dominated by geopolitical newsflow.
Indeed, 2024 will see an unprecedented number of elections around the world, potentially leading to concerning media coverage. Switzerland, by contrast, stands out as a beacon of stability.
One factor adding to the positive outlook on Switzerland is the normalisation of the Swiss franc, whose historical strength has nevertheless been an accelerator for Swiss companies’ productivity gains. Recent trends in 2024 indicate a slight weakening in the Swiss franc and a potential for an earlier interest rate cut. This could ease the currency headwinds of 2023 which pressured the earnings potential of Swiss companies expressed in Swiss francs.
Active investment solutions offer greater diversification compared with ETFs, which have to passively reflect the actual index weightings of the three mega-caps (Nestlé, Roche and Novartis), that together make up more than 40% of the SPI. We could therefore see other opportunities in the rest of the Swiss equity market, notably in the quality small- and mid-cap space, which cannot be easily accessed via passive solutions. The expected recovery of Switzerland’s GDP growth from 0.8% to 1.5% in 2024 could be an additional tailwind for the quality small- and mid-cap segment.
Swiss equities should be considered in any equity portfolio as a risk/return-enhancing allocation, as well as a source of diversification over the medium to long term, especially compared with European and global equities. With a similar 10% earnings growth expected in 2024 for both Swiss and US equities, but with more attractive valuations and less dependence on developments in the IT sector, Swiss equities are an attractive and differentiated investment proposal for 2024.
