A $150 Billion Wipeout Turns Swiss Stocks Into Month’s Losers

(Bloomberg) -- A $150 billion rout has turned Switzerland’s equity market into one of the world’s worst performers this month. 

The Swiss Market Index is down 6.3% in September, poised for its worst pandemic-era showing and the biggest decline among Europe’s main equity gauges, as mounting risks from a surge in bond yields and China Evergrande Group’s woes drive investors away from the country’s highly valued stocks.

That helped to ease the gauge’s valuation to 17 times projected earnings, from a record 18.7 times in mid-August. Among the biggest losers are cement maker Holcim Ltd. with a drop of 13% and computer-accessories maker Logitech International SA with an 11% retreat. 

The selloff in SMI was broad-based, suggesting investors see the whole market as too expensive in an era of slowing growth and firmer yields. It comes amid a global aversion for pricey equities as traders position for a tapering of central-bank stimulus.

“It’s all linked to interest rates,” says Cedric Ozazman, chief investment officer at Reyl & Cie. in Geneva. Swiss stocks “enjoyed a strong rally, even during the summer. These are quality names, but with lofty valuations.”

Rising interest rates pose a risk to future earnings and make hefty equity valuations harder to justify. Switzerland, which enjoys one of the highest valuations in Europe, has become an early victim of this shift, after the benchmark rallied 13% in the four months through August. 

The SMI’s rebound from pandemic lows has “limited space for more expansion but plenty of chances to disappoint on lower margins and higher yields,” says Bloomberg Intelligence strategist Tim Craighead. 

There are other challenges too, such as supply shortages and increased regulatory risk in the all-important China market, which hit luxury stocks such as Cartier owner Richemont. China Evergrande Group’s debt crisis also sparked concerns that some building projects won’t go through, impacting the likes of Geberit AG, a maker of sanitary installations, and construction materials group Sika AG.  

For some, the easing of Swiss equity valuations may soon create buying opportunities. Underlying this bet is the continued increase in analysts’ earnings expectations.

“It may be more of a short-term pain,” Reyl’s Ozazman says. “Institutional investors would love to seize opportunities and snap up Swiss stocks at a lower price.”

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