UBS Equities-European Equity Strategy _Simply Switzerland Not So Neutral...-117814406

ab18 September 2025Global ResearchEuropean Equity StrategySimply Switzerland: Not So NeutralEquities move based on Regime, Earnings, Valuations, and Sentiment (REVS)Swiss equities continue to trade on a structural premium, underpinned by margin strength, superior ROE, and a defensive sector mix, but the macro backdrop is testing. GDP growth is expected to remain below trend in 2025-26, with tariffs weighing on exporters and labour market softness extending. Against this, Swiss EPS growth is still projected to outpace Europe, and valuation dispersion has widened to create selective opportunities. Positioning is anything but neutral, with clustering in resilient growth and thematic defensives while cyclicals remain under-owned.Regime: Recovery With CaveatsPMI data shows Switzerland bouncing back into recovery after a temporary downturn. Historically, price gains have followed regime inflection points, suggesting potential upside if the current recovery phase hold. Yet recovery is fragile: tariffs, labour softness, and uneven global demand cloud the outlook. Within equities, performance has diverged, with Swiss SMIDs outperforming the SMI. The sectoral mix and lower external exposure leave SMIDs more insulated, while large caps remain tied to global trade.Earnings: Revisions Tilt NegativeThe earnings picture has turned more challenging. Revisions are skewed to the downside for both FY25 and FY26, with downgrades broad-based across sectors. Export-oriented companies face tariff headwinds, while even Health Care, traditionally resilient, is not fully immune. That said, the relative story remains in tact with Swiss earnings still forecast to outgrow Europe in FY25, supported by structural quality factors and sector composition. While the short-term momentum is negative, the medium-term trajectory points to stronger profit resilience, making Switzerland one of the few European markets where investors can still find reliable earnings support.Valuation: Premiums With Pockets of ValueSwiss equities continue to command a premium relative to Europe, a feature long supported by superior ROE, higher margins, and prudent leverage. Yet valuation dispersion is widening: more than half of Swiss stocks are trading below their 10-year average P/E. This creates opportunities beneath the surface, particularly in SMIDs where entry points look attractive. Premium remain most visible in high quality large caps, where global investors continue to pay for defensiveness and visibility.Sentiment: Polarisation in Positioning and FlowsPositioning is becoming increasingly polarised. Crowding is evident in Consumer Discretionary, Health Care, and Materials, where investors are clustering around structural growth and defensive themes. By contrast, Communication Services, Financials, and Industrials are under-owned, reflecting caution around cyclicality. Flow data show passive inflows remain robust across all caps, underlining Switzerland's role as a quality anchor in global portf