(Bloomberg) -- Swiss stocks aren’t finding buyers, even after their declines this year pushed the cash reward for owning them to a record compared with government bonds.
This year’s tumble in financial companies and concerns about a strong franc have turned the Swiss Market Index into one of the biggest losers among developed markets. That has pushed the dividend yield of its companies to 3.7 percent, near a record relative to rates on the country’s 10-year government bonds, now in negative territory. Still, investors remain bearish. They have withdrawn money from an exchange-traded fund tracking the benchmark for the past five weeks.
Gone are the days when the nation’s shares were seen as a haven. Concerns about Europe’s ailing banking sector -- Switzerland’s Credit Suisse Group AG and UBS Group AG included -- and economic woes in key export markets such as China have taken their toll on the country’s stock market. And while Swiss National Bank President Thomas Jordan said this week that further easing was possible to take pressure off the franc, Mirabaud Securities LLP’s John Plassard is skeptical.
“There are more important things than dividend yields at the moment -- in Switzerland there is still the risk of a strong Swiss franc,” said Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva. “There may be some opportunities in stocks, but people are still completely adverse to buying them. Things won’t change for the foreseeable future.”
UBS and Credit Suisse have plunged more than 26 percent this year amid worries about about the impact of record-low interest rates and litigation costs on profitability. Swatch Group AG and Cie. Financiere Richemont SA, which get most of their revenue from outside of Switzerland, have tumbled at least 10 percent.
Investors are choosing to pay to hold sovereign bonds rather than buy Swiss stocks, with the yield on 10-year securities down to minus 0.37 percent from minus 0.06 percent in December. That’s even as companies including UBS, reinsurer Swiss Re and bank Julius Baer Group Ltd. boosted dividends in 2016. In March, the iShares SMI ETF saw its biggest outflows in a year.
To Clairinvest’s Ion-Marc Valahu, who favors utilities, health-care and construction shares over bonds, it’s just a matter of time before investors reconsider their stance. Swiss economic reports are beating analysts’ projections by the most since 2012, while data in Europe have trailed estimates for most of this year. The franc remains below its high in January 2015, when the SNB gave up its currency peg.
“The Swiss economy is humming along, not extraordinarily, but not bad either, and most of the companies have had time to adapt to the Swiss franc cap removal,” said Valahu, co-founder and fund manager at Clairinvest in Geneva. “Equity risk is much better than bond or credit risk. There’s lots of opportunities that should pay off.”
That hasn’t happened yet. Swiss stocks are lagging their European peers, with the SMI rebounding less than half as much as the Stoxx Europe 600 Index since a Feb. 11 low. To Alex Neil, EFG Bank’s head of equity and derivatives trading in Geneva, that’s a sign that high payouts aren’t enough to entice investors.
“Dividend-yield investing is already quite long in the tooth, given the fact that the SNB forced investors to go digging for yield,” said Neil. “I can’t really think of any specific sectors where I would want to keep chasing yield just for the sake of it. Investors need to be careful.”
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