One European equity market stands out after bruising sell-off: UBS
The outbreak of the Iran war sparked heavy selling pressure across every European equity market through March, as investors gauge the potential impact of the continent’s second energy price shock in four years. There has been little room to hide for European equity investors. Britain’s FTSE 100 , which is more heavily tilted to oil and gas stocks, has held up slightly better than its peers on the continent, falling 5% over the month compared to a 7% drop for both Germany’s DAX and France’s Cac 40 . Another equity market that has taken a significant bruising is the Swiss Market Index , which comprises the country’s 20 largest listed companies. The SMI fell 7.5% in March, bottoming out around 13% lower on March 20 before paring some losses as the conflict continued to develop. And analysts at UBS believe the Swiss equity market is best-placed to benefit from a potential rebound in sentiment, they wrote in a note on Tuesday. UBS is the largest bank in Switzerland and is listed on the Swiss exchange. Its analysts see the recent correction as offering a good opportunity to enter Swiss equities, due to their more defensive sectoral exposure, which includes a mix of healthcare stocks and consumer staples. “Swiss equities are heavily weighted toward high-quality companies with strong balance sheets, resilient cash flows, and defensive sector exposure, characteristics that have historically helped the market navigate periods of geopolitical uncertainty and weaker economic growth,” the analysts wrote. UBS said Swiss equity valuations, which now trade on around 16x forward earnings with dividend yields of around 3.2%, now look more appealing. Swiss stocks compare favorably with Swiss franc bond yields, which offer zero interest at present. For these reasons, UBS has upgraded Swiss equities to “attractive.” The buy rating expands on an earlier note published March 24, which advocated for a move away from European equity markets. The analysts view the main European bourses as pro-cyclical and particularly sensitive to higher oil and gas prices, owing to the bloc’s lack of energy self-sufficiency. Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a separate note on Monday: “Our recommendation for well-diversified investors remains to stay in the market, and we continue to view equities as Attractive. “However, with energy prices likely to stay higher for longer, we have become more cautious on equity markets that are cyclical and most reliant on imported fuel. These include the European, Eurozone, and Indian equity markets, which we have downgraded to Neutral. “Against this backdrop, we see greater appeal in defensive markets with secular growth potential and limited exposure to energy disruptions. That would include the Swiss equity market and the European health care sector.”
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