Swiss stocks are leading European markets in October, as investors pivot toward defensive sectors amid concerns over artificial intelligence valuations, rising borrowing costs, and political instability. Switzerland’s benchmark index has surged 4.6% this month, while the broader European market has dropped 3.2%, marking the strongest relative performance since early 2020.
The rally has been fueled by strong gains in pharmaceutical giants Roche and Novartis, along with food and beverage leader Nestlé. These three companies alone account for nearly half of the Swiss benchmark’s market capitalization and have collectively driven the index’s entire monthly increase, with Roche up 12%, Novartis advancing 6.7%, and Nestlé gaining 10%.
Investors are increasingly favoring companies with stable earnings, robust balance sheets, and minimal exposure to economic volatility, as enthusiasm for AI-related investments wanes. Damian Burkhardt, head of Swiss equities at EFG Asset Management, noted that investors are seeking alternatives to crowded AI positions, reversing an earlier shift away from healthcare stocks.
Other Swiss companies, including fragrance manufacturer Givaudan and dermatology specialist Galderma, have also benefited, with only four constituents of the Swiss Market Index declining this month. The recovery follows years of underperformance, partly due to Switzerland’s limited exposure to technology and energy sectors.
Looking ahead, Bloomberg Intelligence data suggests earnings growth among SMI companies could accelerate to 10% in 2027, supported by a weaker Swiss franc benefiting exporters. However, the rally has pushed Swiss equity valuations to their highest premium over eurozone peers in nearly two years, raising questions about further upside potential.