UBS Switzerland AG said Swiss equities look appealing in the wake of a recent market correction, highlighting the quality of listed companies and the defensive tilt of the market as advantages in the face of geopolitical uncertainty tied to the US-Iran conflict.
In a report published Tuesday, Stefan R Meyer, CIO Equity Strategist at UBS Switzerland AG, noted that the Swiss Market Index (SMI) forward price-to-earnings ratio stands at roughly 16 times. That level is marginally above the index's long-term average of 15.8 times, but UBS sees valuations as reasonable given corporate profit margins among SMI constituents are at record levels.
UBS drew attention to the Swiss market's yield characteristics, pointing out that the SMI offers a sustainable dividend yield in excess of 3%. The firm described that yield as particularly attractive within the current zero-interest-rate environment, where income-generating investments remain in demand.
On earnings dynamics, UBS reported that SMI companies posted flat aggregate earnings growth over the past year. The investment bank attributed that outcome to operational improvements being offset by currency-related losses. Looking ahead, UBS expects the negative currency effects to abate materially from the second quarter of 2026 onward.
Regarding the macro backdrop, the report states the global economic outlook should gradually improve later this year, underpinned by lower interest rates and fiscal policy initiatives across a number of markets. UBS used that assessment to frame its multi-scenario outlook for the SMI.
UBS set a central-case target of 14,000 for the SMI by December 2026, with the index at 12,421 at the time of the report. The bank outlined an upside scenario with a 15,000 target and a downside scenario at 10,500.
In the upside case, UBS said corporate profits could increase by a high-single-digit percentage in 2026 provided the global economy avoids a marked downturn and Europe posts at least a modest pickup later in the year. The firm also anticipates a mid-single-digit percentage rise in SMI dividends in spring 2026 for fiscal year 2025, and again in 2027.
The downside case laid out by UBS incorporates several risks it sees as capable of weighing on the Swiss market: a significant global economic slowdown, further appreciation of the Swiss franc, and international political disputes that could be detrimental given Switzerland's above-average international exposure.
Beyond valuation and scenario analysis, UBS identified structural growth areas in the Swiss market. The firm highlighted the "longevity" sector, where companies target products and services for older consumers, as presenting durable opportunities. In addition, UBS pointed to energy and resources-linked industrial firms that are benefiting from digitalisation and shifts tied to the energy transition.
UBS's recommended investment focus prioritises quality companies and profitability leaders, while also suggesting selective exposure to mid-cap and cyclical stocks. The bank's preferred investment theme is attractively valued yield stocks that offer dividend growth.
Contextual note: UBS's assessment links the current appeal of Swiss equities to a combination of elevated corporate profitability, defensive sector composition, and a relatively strong dividend yield, while flagging potential headwinds from currency moves, macro deterioration and geopolitical tensions.