How to invest in Swiss stocks: Switzerland index includes global heavyweights Nestle, Novartis and UBS
Switzerland is known for its strong economy, political neutrality and reputed financial institutions.
The nation’s economy is characterised by its highly skilled labour force, low public debt and large number of small-and medium-sized enterprises. The services sector contributes nearly 75% of Switzerland's gross domestic product (GDP).
Switzerland’s strong economic position has made its national currency, the Swiss Franc (CHF), which is often considered a safe-haven asset that many investors turn to during times of a financial crisis.
Yet how can individuals get exposure to Swiss assets? In this article, we talk about how to invest in Swiss stocks.
Swiss stock market explained
Discovering the basics of the Swiss stock market can be a great place to start your investment journey in Switzerland. Let’s begin with learning about the Swiss stock exchange and the country’s equity indices.
The SIX Swiss Exchange is Switzerland’s principal stock exchange. It’s run by a business services company SIX. The Zurich-based exchange is among the top 20 largest stock exchanges in the world in terms of the market capitalisation of listed companies.
The Swiss Market Index (SW20) is considered the most important stock index in Switzerland. The SMI is a blue-chip index that tracks the performance of the 20 largest Swiss stocks.
The Swiss Performance Index (SPI) is also considered a key equity barometer. It tracks the performance of nearly all listed companies in Switzerland and the Principality of Liechtenstein.
According to SIX Group’s data, the healthcare sector accounted for 44% of the blue-chip Swiss Market Index. The consumer goods and financial sectors followed with weights of 23% and 17%, respectively, as of end-September 2022.
Some of the biggest companies in the Switzerland stock market are Roche (ROGZ), global food and beverage maker Nestle (NESN), healthcare stock Novartis (NVS) and multinational investment bank UBS Group (UBS).
The Swiss Market Index started 2022 strongly. It hit an all-time high of 12,997 points on its first trading session of the year on 3 January 2022.The start of the Russia-Ukraine war and global monetary tightening cycle put the brakes on the bull market.
Between January and June, the Swiss Market index posted five months of losses. The blue-chip index closed June 2022 at 10,741 points.
Swiss Market Index performance
Past performance is not a reliable indicator of future results
In September 2022, Switzerland’s central bank raised interest rates above negative territory for the first time in 15 years. The Swiss National Bank raised rates by 75 basis points to take interest rates from -0.25% to 0.5%.
The Swiss Market index posted a monthly loss of 5.4% in September 2022. By 13 October 2022, the index had fallen to 10,010 points, its lowest since November 2020.
The index rebounded from the near two-year low to trade at 10,785 points by the first week of November 2022.
What is your sentiment on SW20?
How to invest in Swiss stocks?
Market participants thinking about investing in Switzerland equities can do so via stocks, exchange traded funds (ETF) or mutual funds, among others.
Stocks
Switzerland-based investors can buy stocks listed on the Swiss Exchange directly through their online brokerage accounts.
Foreign investors can also invest in companies listed on the Swiss stock market provided that their brokerage has listed Swiss equities on their platform.
There are several companies that have dual listings which make them more accessible for foreign investors. For example, UBS Group and Novartis shares are listed on the New York Stock Exchange (NYSE). Richemont and Lonza have secondary listings in South Africa and Singapore, respectively.
ETFs and mutual funds
Index funds are considered by some an easy and convenient way to gain exposure to stock market indices. ETFs are passive investment tools that track the performance of an index. It differs from mutual funds which are actively managed by a professional investor.
One of the ways for investors to gain broad exposure to the Swiss stock market is by investing in an index fund that tracks the indices like the Swiss Market Index or Swiss Performance Index.Market participants looking for exposure to particular sectors or certain trends may also buy an ETF tracking a sector index, if find this approach suitable.
Some Swiss sector and thematic indices are SXI Life Sciences Index, SXI Bio+Medtech Index, SXI Switzerland Sustainability 25 Index and SXI Real Estate Selected Funds Index.
Trading Switzerland stocks via CFDs
Looking at how to trade on the Swiss stock exchange, contracts for difference (CFD) offer an alternative to buying and selling equities directly.
CFDs are leveraged financial derivative instruments that allow traders to speculate on the future price movements by either taking a long or short position without owning the underlying shares. Capital.com offers a wide selection of Swiss companies to invest in via CFDs, from Nestle to Novartis, UBS Group and more.
It is important to note that due to leverage, CFD trading can magnify both profits and losses. Traders may incur losses greater than their initial capital if the market moves against their position as they essentially borrow the funds from their brokerage.
On the other hand, the use of leverage allows one to gain greater exposure to an asset with the available capital. For example, Capital.com offers a leverage ratio of 10:1 on Swiss Stock Exchange Index CFDs (SW20), which means that the trader will require only $100 to a position worth $1000 in the index.
CFD trading can also be a popular instrument for short-selling as traders are not required to own the underlying asset. A short position in an index fund or stock can be opened by selling a CFD and later closing the position based on a trader's price target and risk appetite.
It is important to note that CFD trading may come with additional fees such as overnight charges and guaranteed stop-loss fees. Due to overnight charges, CFD trading is short-term in nature.
A key risk of CFD trading is a margin call. Brokerages may ask account holders to add extra capital into their accounts if the value of their assets falls below a certain threshold. The brokerage may sell assets in the account to cover the margin loan used in leveraged products in case the account holder fails to meet the margin call.
Key risks associated with Switzerland equities
Equities and related products are considered high-risk investments as they are vulnerable to market risks that may arise from global factors or company-specific developments.
The Swiss Market index has fallen over 16% year-to-date, as of 4 November, due to risk-averse investor sentiment amid global monetary tightening cycle, the Russia-Ukraine war, a European energy crisis, and concerns of a recession in Europe and the US.
Company-specific risks that can adversely affect stock market valuations include poor earnings results and forecasts, news on mergers and acquisition (M&A), management controversies, activist investors, insider trading, fraudulent activity, delistings and bankruptcies.
Final thoughts on how to invest in Swiss stocks
It is important to highlight the value of due diligence before trading or investing. Always conduct your own research before making any financial decisions, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis.
Traders should understand the risks related to equity markets and to using leveraged instruments such as CFDs. More importantly, it is critical to acknowledge the unpredictability of financial markets.
Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose.
FAQs
Can foreigners invest in the Swiss stock market?
Foreign investors can invest in companies listed on the Swiss stock market provided that their brokerage has listed Swiss equities on their platform. Several companies have dual listings, making them more accessible for foreign investors. UBS Group and Novartis are listed on the New York Stock Exchange. Richemont and Lonza have secondary listings in South Africa and Singapore, respectively.
Are Swiss stocks a good investment?
As of 4 November, the Swiss Market index has lost over 16% year-to-date. It is important to highlight the value of due diligence before trading or investing. Always conduct your own research before making any financial decisions, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis. Remember, past performance does not guarantee future returns. And never trade money you cannot afford to lose. If you are in any doubt, seek professional advice.
Where can I buy Swiss stocks?
Investors can buy Swiss stocks provided that their online brokerage has listed stocks on the SIX Swiss Exchange or dual listings of certain Switzerland-based companies like UBS and Novartis.
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