Swiss equities: Should I stay or should I go?

“Should I Stay or Should I Go?” The Clash famously asked in 1982. Four decades later, investors are asking the same question of financial markets. Despite elevated uncertainty and increasingly turbulent market reactions, our answer remains clear. As Swiss equity investors benefiting from this market's global reach, we say: stay invested, but become significantly more selective.

Noise vs. fundamentals

Markets are increasingly driven by short-term participants. Retail investors, quantitative strategies and hedge funds now account for roughly three-quarters of trading volumes, amplifying every earnings surprise, economic datapoint and geopolitical headline. In our view, volatility has become a structural feature of markets rather than a temporary phenomenon. Yet this noise continues to create opportunities for investors willing to focus on fundamentals rather than headlines.

In tandem, investors are becoming more discerning. The distinction between compelling narratives and tangible business opportunities is beginning to gain significance – nowhere more evident than in the AI ecosystem. Markets are increasingly demanding proof of sustainable revenue growth, profitability and attractive returns on capital. Simply telling an AI story is no longer sufficient, and announcements of multi-billion-dollar capex programmes now raise as many questions as they do enthusiasm. The underlying AI investment cycle remains powerful, but investors are becoming less willing to fund growth irrespective of economics.

The risk markets are ignoring 

We believe geopolitics remains the key macro risk that markets continue to discount. Investors have so far been right to fade successive geopolitical scares, but complacency appears increasingly stretched. The most relevant tail risk is a scenario in which Iran and its proxies disrupt both the Strait of Hormuz and the Bab al-Mandeb simultaneously – critical arteries for global energy and trade flows. With inventories of oil and refined products already at relatively low levels, the market's buffer is thinner than many investors appreciate. While this is not our base case, the asymmetric downside warrants attention. Our central scenario remains one of inflationary growth, supported by resilient economic activity and healthy corporate earnings.

Why the earnings case still holds

Fortunately, earnings continue to provide the strongest support for current valuation levels. Consensus expectations for US earnings growth in 2026 have increased from 24% to 29% within only a few weeks (based on Bloomberg data), highlighting the continued resilience of corporate America. In our home market, Swiss corporates have also delivered a strong first half despite substantial foreign-exchange headwinds. As a result, earnings growth expectations for the SPI have risen to 13% for 2026 from 9% previously. Within the space, we think Swiss small- and mid-cap companies remain particularly attractive, with projected earnings growth of around 20%, supported by a broad and diversified set of growth drivers.

How we're positioned

We believe investors should use periods of market turbulence to increase exposure to high-quality compounders that are only now reappearing on investors' radar screens. 

At the same time, our conviction is growing that parts of the AI trade are beginning to show cracks. Rising volatility across the most crowded momentum segments suggests that leveraged capital is becoming increasingly fragile. We feel that it is likely only a matter of time before hot money starts leaving the trade, either voluntarily or by force. While the long-term potential of AI, in our view, remains unquestioned, the risk-reward profile of many perceived AI winners has deteriorated materially. Downside risks are increasingly outweighing incremental upside opportunities.

Positioning portfolios for this transition is therefore critical. In recent weeks, we have further strengthened our quality-growth bias. Our portfolio is expected to generate a 2026 return on equity of 23%, compared with 19% for its benchmark, the SPI Extra Index, while trading at a lower forward P/E of 26.5x (vs. 27.3x for the benchmark) and EV/EBITDA of 17.8x (vs. 18.9x), based on 2026 earnings*.

In a market that is becoming more demanding on earnings quality, capital efficiency and resilience, we believe superior businesses at reasonable valuations remain the most compelling way to navigate the next phase of the cycle.

So, should investors stay or go? Stay, but be selective. In this market, that distinction is the whole strategy.

* Data as at 31 July 2026. Past performance is not indicative or a guarantee of future returns. Indices are not available for direct investment.

Risk warning

Swiss equities are subject to market fluctuations and may rise or fall in value in response to economic, political, market or company-specific developments. Small- and mid-cap (SMID) companies can experience greater share-price volatility than larger companies and may be more sensitive to changes in economic conditions, investor sentiment or company-specific developments. Shares in smaller companies typically trade less frequently and in lower volumes than those of larger companies. This can make them more difficult to buy or sell, particularly during periods of market stress, and may contribute to greater price movements. The Swiss SMID market represents a relatively concentrated investment universe within a single country. Performance may therefore be particularly sensitive to developments affecting individual companies, sectors or the Swiss economy.