The broadening of Swiss stocks appeal

Investors worldwide are asking themselves which sectors will benefit from the next wave of AI winners. While technology firms have dominated equity returns for much of the last two years, improved productivity and earnings are now starting to filter into the adopters of AI. This shift could benefit Switzerland’s healthcare and financial firms, two sectors that dominate its largest stock market index.

Following a strong first half of 2026, much of the anticipated earnings recovery now appears priced into the Swiss Market Index (SMI). Swiss industrial firms have benefited from the AI infrastructure buildout and recovery in corporate capital spending. The healthcare, financials and luxury sectors, which make up just over three-fifths of the SMI’s weighting, have also gained over the past month. This is part of a broader market rotation to defensive and cyclical lagging sectors, as investors sought to diversify from concentrated tech exposure.

The healthcare, financials and luxury sectors, which make up just over three-fifths of the SMI’s weighting, have also gained over the past month

The Swiss franc has been an important tailwind for the country’s multinational businesses that are managing Swiss franc-denominated costs, but whose earnings are largely generated in foreign markets. The currency performed strongly over the second half of 2025 as investors anticipated easing policy rates in the US, and concerns about the Federal Reserve’s institutional credibility. As those factors faded, the Swiss franc’s relative strength has waned. With market pricing for Fed rate hikes still elevated, the dollar should stay supported against lower-yielding currencies like the Swiss franc. Our 12-month assumption for the US dollar- Swiss franc is 0.80, and a range of 0.79 to 0.84 over the months ahead.

In the first half, Swiss equities also benefited from some flows towards defensive and haven stocks amid renewed Middle East tensions and higher energy prices, which have revived stagflation concerns.

Looking ahead to the second half

In the second half of the year, we expect Swiss stocks to generate more modest returns. Valuations for many leading Swiss companies are now above their long-term averages, limiting scope for further upside. As a result, earnings growth is likely to become the primary driver of performance. While the earnings recovery remains intact, we expect profit growth of around 7% in both 2026 and 2027, slightly below consensus, and trailing some other developed markets.

AI is starting to enhance productivity in drug discovery, clinical development and data management, adding another long-term tailwind for the healthcare sector

Still, healthcare – the largest single sector in the SMI – remains one of our global preferences. Earnings momentum continues to improve, supported by a cyclical recovery in medical equipment, innovation in oncology and immunology, and potential Medicare coverage for obesity drugs in the US. At the same time, AI is starting to enhance productivity in drug discovery, clinical development and data management, adding another long-term tailwind for the healthcare sector. A reduction in US policy and tariff uncertainty could also act as further catalysts. In the meantime, we continue to monitor the potential impacts of the latest round of US tariff announcements, including a plan to impose 100% duties on generic pharmaceutical imports.

In September, investors in the SMI will see their exposure to healthcare increase further. Telecom provider Swisscom AG and logistics firm Kühne & Nagel SA will drop out of the index to make way for skincare specialist Galderma SA and generic drug manufacturer Sandoz AG.

In September, investors exposed to the SMI will see their weighting in the healthcare sector increase further, with the inclusion of dermatological care specialist Galderma SA and generic pharmaceuticals manufacturer Sandoz AG

Importantly, in addition to the benefits of AI adoption in healthcare, we believe that the technology’s impact in financial services is still underappreciated. The sector is benefitting from the AI boom in financing as well as increased capital markets activity. AI integration is improving efficiencies across the sector, where Switzerland is well positioned to enhance client servicing and reduce operating costs across administrative processes, risk and compliance functions. Gradually, such productivity gains should offset cost pressures, support margins and allow firms to efficiently scale their services.

In addition to the benefits of AI adoption in healthcare, we believe that the technology’s impact in financial services is still underappreciated

Small and mid-cap diversification

The relatively defensive composition of the main Swiss index strengthens the need for investors to broaden their exposure. The Swiss Performance Index (SPI), comprising around 200 Swiss firms, can complement the SMI. Even more attractive in our view is the SPI Extra, which offers exposure to smaller and mid-capitalisation domestic stocks. We prefer this market segment globally versus large capitalisation names, and we see scope for its relative valuation premium relative to the SMI to rise above its historical average of 28% as cyclical conditions improve. 

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While we are currently neutral on Swiss stocks in portfolios, we favour selective stock exposure as we still believe they hold an appeal for investors on many fronts. The country is home to many world-class companies that offer high levels of innovation against a stable economic and political backdrop. Forecast dividend yields of 3% over the next 12 months look attractive. And because of the SMI’s weighting towards defensive sectors, Swiss stocks often exhibit lower volatility than other developed markets.

Forecast dividend yields of 3% over the next 12 months look attractive

We also note that for Swiss investors, home-market equity exposure helps remove some of the need for currency hedges in portfolios. Combined with our preference for Swiss small and mid-cap companies, this supports a selective approach focused on high- quality firms positioned to deliver sustainable earnings growth and attractive dividends.

As AI market leadership broadens beyond the technology sector, Switzerland's substantial exposure to healthcare and financials positions it favourably. In this environment, investors should look beyond the increasingly defensive SMI and towards the wider Swiss equity market.