UBS has re-rated Swiss equities to Attractive, arguing that the recent market correction driven by the U.S.-Iran conflict presents a timely opportunity for investors to reposition their portfolios. The bank described the downturn as a "constructive entry point" for redeployment and advised that investors could finance increased Swiss equity exposure by reducing holdings in more cyclical markets.
Strategists at UBS, including Mark Haefele, stressed the appeal of Switzerland's market composition in the current climate. They highlighted the Swiss Market Index's heavy exposure to defensive sectors - notably health care and consumer staples - and to companies characterized by strong balance sheets and durable profitability. That sector mix, the bank argued, is better aligned with an environment of heightened geopolitical risk and decelerating economic growth.
The selloff left the Swiss market nearly 15% down at its intra-month low before a partial recovery, moving it well below the highs seen in early March. UBS noted that the decline has been amplified by Switzerland's reliance on imported crude and liquefied natural gas, with Brent crude trading at roughly $113 per barrel as of March 31. Those energy cost considerations add to near-term headwinds for the economy and corporates.
Switzerland's macro backdrop was already soft prior to the conflict: GDP grew just 0.2% quarter-on-quarter in the fourth quarter of 2025. Despite that slowing momentum, UBS pointed to valuation and income metrics that have become more attractive following the correction. The SMI is trading at about 16 times forward earnings, a multiple only slightly above its long-term average of 15.8 times. In addition, the strategists observed a dividend yield of roughly 3.2% for the market, which they said compares favorably to Swiss franc bond yields in a zero interest rate environment.
"With profitability among SMI companies near record highs, we think distributions look sustainable, and dividend growth remains an important part of the market's long-term appeal," UBS wrote. Based on these measures, the bank recommended a preference within Swiss equities for quality companies, leaders in profitability, selected mid-cap stocks and "attractively valued dividend growers."
On earnings momentum, UBS expects some of the pressures that affected SMI companies the prior year to abate. The bank noted that currency-related headwinds, which offset much of the operational progress recorded in 2024, should ease starting in the second quarter. UBS also judged concerns around U.S. tariffs and drug pricing to be "less acute than they were," implying these specific pressures may have diminished but remain considerations for forward performance.
UBS applied the same constructive stance to the European health care sector, upgrading it to Attractive as well. The bank observed that the sector has slid more than 10% since the onset of the conflict despite its usual low-beta characteristics, making valuations appear more compelling. UBS additionally flagged a dividend yield of about 2.7% for European health care, which it views as offering an element of return stability.
In sum, UBS is recommending a reallocation toward Swiss equities focused on high-quality names and dividend growers, to be funded by trimming cyclical exposure elsewhere. The bank's case rests on defensive sector positioning, improved valuation metrics following the selloff, sustained profitability among SMI constituents and dividend yields that are attractive relative to prevailing Swiss franc bond yields.
Key points
- UBS upgraded Swiss equities to Attractive, viewing the selloff as a "constructive entry point" to reposition portfolios.
- The bank favors quality large caps, selected mid-caps and attractively valued dividend growers, and suggests funding allocations by reducing exposure to cyclical markets.
- European health care was also upgraded to Attractive; the sector has fallen over 10% since the conflict began and offers a roughly 2.7% dividend yield.
Risks and uncertainties
- Elevated energy prices and Switzerland's dependence on imported crude and LNG could compound market and economic stress; Brent crude was around $113 per barrel as of March 31 (impacts energy-exposed sectors and broader corporate costs).
- Macroeconomic momentum is weak: Swiss GDP expanded only 0.2% quarter-on-quarter in Q4 2025, underlining growth vulnerability for domestically sensitive sectors.
- Persistent headwinds such as currency drags, U.S. tariffs and drug pricing remain potential constraints on earnings, even though UBS expects some of these pressures to ease.