Swiss Stock Market Offers Attractive Dividend Yields Amid Market Uncertainty

Investing.com – UBS Group Swiss Shares Chief Investment Office expects that despite ongoing conflicts in the Middle East and US trade policies posing challenges to corporate planning and growth prospects, the Swiss stock market will still maintain positive earnings growth.

In a zero-interest-rate environment, the Swiss stock market offers a sustainable dividend yield of just over 3%, which UBS considers attractive to investors.

The investment bank recommends focusing on high-quality companies and profit leaders, as well as selected mid-cap and cyclical stocks.

The US-Iran conflict and related uncertainties surrounding energy costs, consumer confidence, and the global economic outlook are currently dominating the stock market.

UBS believes the most likely scenario is that the conflict will end within a few weeks, although prolonged tensions could put greater pressure on economic and financial prospects.

Since the beginning of the year, many new artificial intelligence tools have been released, indicating that AI applications are rapidly penetrating almost all sectors.

This development has triggered market rotation, with investors pulling out of stocks potentially affected by AI and shifting to sectors less likely to be impacted or more likely to benefit from the technology.

UBS warns that while AI will bring significant changes to the economy over the next few years, the exact outcomes remain uncertain. The firm believes that market enthusiasm for potential AI beneficiaries and the sell-off of stocks that may be at a disadvantage are often overly broad.

Tactically, UBS recommends reducing exposure to pharmaceutical stocks, which have recently served as AI-related safe havens, and selectively buying oversold companies in affected sectors.

Regarding structural growth opportunities, UBS highlights the longevity of the Swiss stock market, where companies that cater to the needs and preferences of an aging population have promising prospects.

In the energy and resources sectors, several Swiss industrial companies are benefiting from transformative innovations in digitalization and energy transition.

UBS’s central scenario target for the Swiss Market Index (SMI) is 14,000 points by December 2026, with the index closing at 12,901 points on Wednesday. In an optimistic scenario, the target rises to 15,000 points, while a downside scenario projects 10,500 points.

The investment bank’s favored investment theme remains value stocks with attractive valuations and dividend growth.

Since 2009, Swiss dividends have generally increased each year, except in 2021 when the SMI total dividends declined by 5%. From 2022 to 2025, dividends are expected to recover and grow annually by 4% to 8%.

According to UBS forecasts, exchange rate impacts will be slightly negative in 2024, significantly negative in 2025, and expected to remain markedly negative into the first quarter of 2026, before easing considerably.

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