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(Bloomberg) -- This year’s rally in Swiss stocks is waning, and traders are preparing for tougher days ahead.

As the Swiss Market Index heads for one of the biggest declines among developed markets this month, the number of bearish options on the gauge has climbed to its highest level since 1998 versus bullish ones. At the same time, the cost of the contracts has reached its highest since January 2015 relative to those on the Euro Stoxx 50 Index.

Guillermo Hernandez Sampere, head of trading at MPPM EK, has been avoiding Swiss equities because of a weaker growth outlook. The nation’s economy is forecast to trail the euro area’s for a third straight year, and the Swiss National Bank kept interest rates at record lows on Thursday, citing a strong currency.

“There’s a lack of economic impulses and any economic downturn would hit Switzerland earlier than the rest of Europe with the expensive exports,” said Sampere from Eppstein, Germany. “We haven’t invested in Switzerland for a long time, and we’re not planning to return.”

After rallying as much as 11 percent this year, investors began shunning Swiss stocks for riskier assets following the French presidential elections. The SMI has lost 3 percent since mid-May, with lenders Credit Suisse Group AG and UBS Group AG falling more than 3.8 percent, while Roche Holding AG lost 7.3 percent after releasing disappointing drug results. Historically, June has proved to be particularly difficult for the SMI, with losses in that month in eight of the last 10 years.

The number of bearish options on the SMI has climbed 16 percent since the May monthly expiration, outpacing the rise in open interest for bullish contracts. Now there are more than 2.5 puts for each call, and the three-month implied volatility on the gauge has risen 17 percent from a low in April. In the period, the measure was little changed for the Euro Stoxx 50.

To Benno Galliker, a trader at Luzerner Kantonalbank in Lucerne, Switzerland, the options and stock activity reflects investors’ concerns about banks and health-care companies, sectors that together account for more than half of the SMI’s weighting. Drugmakers have felt the pinch of pricing pressure in the past year.

“This shows the reluctance of many investors to ride this rally in earnest,” Galliker said. “I don’t see the ECB able to raise interest rates soon, which will be a huge problem for financials. There are still some fears about changes in the U.S. health system.”

To contact the reporter on this story: Roxana Zega in Zurich at rzega@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Cecile Vannucci

©2017 Bloomberg L.P.

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