Swiss Stocks Miss Out on Draghi Rallies in Rest of Europe

Mario Draghi Dovish on European Economy
  • Strong franc and China slowdown weighing on Swiss stocks
  • Traders withdrawing from ETF, while bearish options rise

The prospect of more stimulus from Mario Draghi has been boosting most European stock markets. Switzerland has been lagging behind.

Hurt by a strengthening franc, the Swiss Market Index has largely missed out on the rally that has added about $6 trillion to equities since the September lows of a global market rout. The potential for more monetary easing from the European Central Bank is weakening the euro, prompting investors to opt instead for assets seen benefiting from the currency’s decline. The biggest exchange-traded fund tracking the Swiss market has seen regular outflows in the last few months, while the number of bearish options has increased.

“Swiss companies exporting to Europe are now finding it tougher and tougher, and China is still a headwind,” said Daniel Weston, chief investment officer of Aimed Capital in Munich. “The European purchaser is now more inclined to buy European stocks rather than Swiss.”

Weekly outflows from iShares SMI ETF
Weekly outflows from iShares SMI ETF

Traders have been pulling out of Swiss stocks even as most other markets have rebounded from the summer slump. The iShares SMI ETF, the biggest tracking the nation’s equities, hasn’t seen inflows since August, while a fund following European equities just posted its biggest monthly inflows ever. The SMI is among the worst developed-market performers of this quarter, up just 4.2 percent.

Exporters Fall

The franc has gained almost 2 percent in the last two months versus the euro, as bets on more ECB easing weakened the common currency. A potential China slowdown has also been weighing on Swiss exporters: Cie. Financiere Richemont SA, the owner of the Cartier and Montblanc brands, fell as much as 7.6 percent this month after a surprise sales drop in October. The biggest quarterly decline since 2009 for Swiss watch exports sent Swatch Group AG down as much as 8.2 percent last month.

Christian Zogg, from LLB Asset Management in Vaduz, Liechtenstein, says he’s sticking by his Swiss holdings. It’s just a matter of time, he says, until investors come back. The SMI’s top performers, Actelion Ltd., UBS Group AG and Swiss Re AG, have surged more than 14 percent each this year through yesterday.

“Health care and financials are strong sectors in Switzerland, I am holding a relatively high proportion of them,” said Zogg, head of equity and fixed income at LLB. “The weak euro is always a problem for the Swiss stock market, but in the long term, the Swiss franc will eventually come down. That takes some time.”

For now, with the SMI down this month, investor concerns remain. The number of bearish options outstanding is near its highest level of the year relative to bullish ones.

“The year-end rally might be a bit disappointing in its scope, or might arrive only very late into the year,” said Benedict Goette, the Zurich-based founder of asset-management firm Compass Capital, currently merging with Crossbow Partners. “Many people have become more cautious.”

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