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The Swiss stock exchange and the development of various industries
The Swiss Market Index (SMI) has almost regained its former strength after the slump in March. However, the performance of companies varies considerably. After the massive decline in March, the SMI – the index of the 20 largest Swiss companies – has regained ground. At the beginning of June, it was already above 10,000 points, only 6% below the level at the beginning of 2020. By way of comparison, the leading Italian MIB index fell by 19% in the same period, the French CAC40 by 18.5% and the DAX in Germany by 9%. “The Swiss stock exchange is outperforming all the major markets”, says Eleanor Taylor Jolidon, Co-Head of Swiss & Global Equities at Union Bancaire Privée (UBP). What is the reason for this? “Companies from the US and Switzerland achieve the highest value creation worldwide,” Taylor Jolidon continues. “The environment is difficult for companies that rely on strong growth. This is not the case for most Swiss companies. I therefore expect the local market to continue to outperform.
Swiss companies are well-positioned to weather crises like this. “They are internationally oriented. This means that periods of economic weakness in individual regions are offset by developments in other countries. Companies that are present in many markets are better able to cushion crises,” explains Jérôme Schupp, a financial analyst at Prime Partners. “Moreover, Swiss companies are often market leaders or occupy a leading position in their segment, so there is no getting around them”. But not everything is rosy. “We have moved from exaggerated pessimism to a slightly too much optimism,” adds Jérôme Schupp. “The markets see the pandemic as a temporary crisis that will be followed by a strong recovery. But the difficulties are only just beginning. Eleanor Taylor Jolidon agrees: “The world economy is extremely fragile. Many people have lost their jobs – almost 40 million in the US alone – and I am not sure that they will be able to find a job quickly”, the UBP manager explains. “There is a lot of optimism in the markets at the moment, but I expect corrective movements and some painful surprises, followed by renewed euphoria”.
The current optimism is partly due to the company results for the first quarter of 2020. They turned out better than expected. “The markets are very emotional,” says Eleanor Taylor Jolidon. “They looked at the first-quarter results and concluded that not everything is so bad after all. But the most important thing is not the figures from the past, but future developments and especially those after the lockdown.
In a sense, the SMI occupies a special position. “This index is not representative of the Swiss stock market given the three heavyweights Roche, Novartis and Nestlé, which have outperformed the market as a whole during the crisis and have good prospects,” explains Jérôme Schupp. “If you look at the other companies in the SMI or all companies listed in Switzerland, the picture is more mixed. The operator of duty-free shops at Dufry airport, for example, has been severely affected by the coronavirus pandemic and its revenues have fallen to almost zero (-94% in April). Logitech, on the other hand, managed to increase sales of webcams by 32% and accessories by 60% during the corona restrictions. We should therefore not look so much at indices such as the SMI or at entire sectors. Investors should rather focus on companies that create value.
The pharmaceutical and food industries
It is not surprising that the pharmaceutical industry is doing well in times of a health crisis. Roche, for example, is making a name for itself through its expertise in diagnostics and innovative products and is thus proving crucial in the fight against Covid-19. The Basel-based company can also count on its drug Actemra, which is used to treat patients with severe lung complications. In May, Lonza signed an agreement with the US biotech company Moderna Therapeutics to help manufacture a vaccine against Covid-19. If successful, the Swiss chemical company, whose sales in the first quarter were up by more than 7.4% year-on-year, could become a key player in the production of the long-awaited coronavirus vaccine. Givaudan is also doing well. The Geneva-based flavours and fragrances manufacturer, whose Fine Fragrances business was affected by the crisis, switched part of its production to the manufacture of disinfectants early on. The food giant Nestlé benefited in the first quarter from customer stockpiling due to the corona pandemic.