Swiss equities will outperform US equities

Economists expect moderate GDP growth of 1.5% and inflation rates falling from 1.1% to 0.3% in Switzerland in 2025. The consensus assumes a return on Swiss equities of around 5%. However, in the last 25 years, the forecasts have been wrong almost without exception, or have already been priced into the market around 12 months before the forecast. The probability is correspondingly high that the stock market will perform significantly better or significantly worse than 5%.

What speaks for a significantly better Swiss stock market?

The Swiss stock market is undervalued compared to the US stock market and was one of the worst performing index worldwide last year.

According to the Buffett indicator (market capitalization in relation to GDP), the market has around 8% upside potential. The total dividend payout from Swiss equities will increase by 4% to around CHF 54 billion in 2025, which corresponds to a dividend yield of around 3.5%. If the SNB lowers key interest rates further, equities will become more attractive than bonds. A possible normalization of the yield curve could have a positive impact on the earnings of banks and insurance companies.

Fears of Trump's threatened punitive tariffs, particularly with regard to the pharmaceutical and chemical sectors, are likely to be exaggerated. Expectations in the hard-hit industrial sector, particularly in the automotive and mechanical engineering industries, are already very gloomy. New elections in Germany and France could pave the way for urgently needed economic reforms in Europe. The small and mid-caps in particular, which dragged down the indices in 2024, are likely to outperform due to falling interest rates and more favorable regulatory conditions. Artificial intelligence should also lead to productivity gains for local companies. New economic stimulus packages from China could induce European growth. There is also hope that the war in Ukraine could come to an end.

Market sentiment as measured by the Fear and Greed Index is cautious, which would support a positive equity market trend.

We see risks that the equity markets could develop negatively in a sudden sharp rise in unemployment in the US and Europe, as well as in a decline in global investment activity, accompanied by persistent or rising inflation rates and interest rates. The US budget deficit, trade conflicts and geopolitical uncertainties remain a sword of Damocles hanging over the equity markets in this respect. The risk of disappointment in a Republican president's first year in office is high. Since 1926, all but four Republican inaugural years have been negative (Trump's first year in office in 2017 was one of the four).

In the short term, we believe the opportunities for rising equity markets are intact, not least due to rebalancing effects from institutional investors at the beginning of the year and cautious investor sentiment. However, we expect market volatility to be higher than last year. The decisive factor will be how far the Trump administration will push ahead with tariffs. On January 20, Trump will start his 2nd term in office. Despite all the potential trade obstacles, we must not forget that Trump sees the stock market as a gauge of political success. The general election in Germany on February 23 is likely to set the tone for economic reforms in Europe. Finally, we expect positive impetus from China and the National People's Congress in March, where further stimulus measures are likely to be announced. Political stock markets require flexibility in investment strategy and a long-term view.

For the time being, we are assuming a “positive” scenario.

In any case the ARKUDOS team wishes you a Happy New Year!

Simon Götschmann

CEO ARKUDOS