UBS Equities-European Equity Strategy _Simply Switzerland Premium, But P...-118355672

ab21 October 2025Global ResearchEuropean Equity StrategySimply Switzerland: Premium, But Priced to PlayEquities move based on Regime, Earnings, Valuations, and Sentiment (REVS)Swiss equities continue to be driven by the interplay of macro regime shifts, earnings resilience, structural valuation premiums, and evolving investor sentiment. The REVS framework remains the lens through which we interpret market moves, sector leadership, and tactical opportunities. This month, regime uncertainty is rising, earnings are holding up better than Europe, valuations remain premium but with pockets of value, and sentiment is showing signs of rotation and crowding.Regime: Switzerland’s Macro Regime Oscillates, but Performance PersistsSwitzerland has oscillated between recovery and downturn for the past four months, with the latest PMI new orders confirming a renewed downturn. Yet, performance remains robust: the MSCI Switzerland index continues to outperform expectations, thanks largely to defensive sector leadership and the enduring “safe haven” status of the Swiss franc. SMID caps have outperformed, but large caps are closing the gap. Pharma remains the top driver of returns year-to-date, though momentum is picking up as a secondary force. The Swiss market’s defensive sector concentration provides resilience, but macro risks (especially US tariff escalation) are rising.Earnings: Swiss Earnings Hold FirmSwiss corporates' earnings are expected to outgrow their European peers in this year, with aggregate EPS momentum net positive despite sector-level negatives. Exporters, especially cyclicals and pharma, face persistent earnings headwinds from tariffs and CHF strength, but domestic demand remains resilient. Revisions for FY25 and FY26 are skewed to the downside, reflecting caution, but the overall market is holding up better than Europe. Inventories and possible exemptions cushion near-term pharma risks, but medium-term threats (production relocation, minimum drug pricing) could bite.Valuation: Premium, but Not PricelessSwiss equities trade at a structural premium to Europe, underpinned by superior ROE, margin strength, and leverage. More than half of Swiss stocks are trading below their 10-year average P/E, especially among SMIDs, offering selective entry points. The premium is most visible in high-quality large caps, but quality and growth demand a premium across the board. The SPI remains highly concentrated in defensives, and the valuation gap versus Europe is driven by Switzerland’s macro resilience and sector mix.Sentiment: Crowded Quality, Shifting FlowsInvestor sentiment is rotating: crowding scores show longs clustered in quality and growth, while shorts are concentrated in cyclicals. Passive flows remain strong, with active flows showing signs of improvement after a recent downturn. SMID cap equities continue to attract passive inflows, but active flows have softened. The market’s defensive positioning and home bias support resilience, but watch for sh