Swiss Equity Markets

Abstract

Since around 1990, the Swiss stock market has faced global competition, deregulation, automation, and enormous growth of structured products and exchange-traded funds. Driven by increased capital mobility, the market has become highly correlated with other well-developed stock markets, reducing diversification benefits for investors. Despite massive market capitalization growth, the stock market has returned more capital to investors than it has raised. During the same period, the number of listed foreign securities decreased. Today, Switzerland exhibits one of the world’s highest stock-market-capitalization-to-GDP ratios, which shows the importance of a well-functioning financial market for the country’s economy. Unlike the impact of the US-subprime mortgage crisis in 2008, the COVID-19 pandemic had no lasting effect on the Swiss stock market.

Introduction

The past decades have brought powerful changes to Switzerland’s equity markets. Since 1987, they have become more integrated with other equity markets globally, leading to lower diversification benefits for international investors. Global competition has increased dramatically, and foreign companies have noticeably delisted their shares from Swiss exchanges due to more accessible and liquid equity markets in their countries of origin. Measures to increase transparency include strengthening registered shares relative to bearer shares . The growth of exchange-traded funds (ETFs) and structured products has presented customers, exchanges, and financial regulators with new opportunities and a host of apprehensions regarding risks and how to keep them at moderate levels. Faced with the threat of diminished relative importance, the Swiss finance sector has stepped up its efforts through the creation of novel financial products. Driven by economic growth, the Swiss stock market has exhibited a higher volume growth than the Swiss franc bond market, and stock market capitalization in proportion to GDP in Switzerland is among the highest internationally. Yet, the question is if the Swiss equity market furnishes enough risk capital to boost long-term economic growth and provide a fertile ground for levering Switzerland’s excellent research output into marketable products to secure the country’s position at the forefront of technological development.

Equity Markets

Equity (i.e., stock) markets are a subtype of the financial sector that bring buyers and sellers of company shares together. Often, equity markets are associated with trading (i.e., the exchange of equity ownership rights), but their primary economic function is to raise capital for worthwhile economic ventures. Nevertheless, because of trading activity, equity markets are also an important source of price information for non-listed firms.

Business enterprises looking for financing can raise capital by issuing various financial instruments . Among these, equity securities comprise instruments normally linked to ownership rights and therefore represent the owners’ share of a company. In countries with well-functioning financial markets and high legal security standards, public stock markets allow firms to raise equity funds directly from the public. In countries without capital markets , especially in developing countries, family, relatives, and friends typically provide capital. Under these circumstances, the growth of young firms is potentially restricted.

Another source of financing is indirect, through financial intermediaries, and represents a third tier lying between angel financing (i.e., relatives and friends) and direct capital market contact. In developed countries, some firms draw from all three forms of finance. Usually, start-up firms obtain most of their funds from private networks and venture capitalists, especially during very early stages. More mature firms get bank loans, and large firms tend to tap the public financial markets.¹

Switzerland’s stock market is still young relative to other developed countries. Due to the nation’s comparatively slow rate of industrialization and its high proportion of privately-held companies, the opening of the first Swiss stock market (in Geneva) did not occur until 1850. Only when the huge financing needs of the second half of the nineteenth century emerged—particularly for large infrastructure projects, such as railways—and overwhelmed traditional private financing sources, such as bank loans and net earnings, did the need for equity financing arise. Other stock exchanges were established in Basel (1866), Lausanne and Zurich (1873), Bern (1884), St. Gallen (1887), and Neuenburg (1905). Today’s Zurich-based SIX Swiss Exchange is the result of a 1993 merger of the remaining stock exchanges of Basel, Geneva, and Zurich. Along with this reorganization and consolidation, the National Stock Exchange Act (SESTA) of 1995 replaced cantonal jurisdiction.

Switzerland’s rise to prominence in the international financial markets is a twentieth-century phenomenon, mainly after 1945, when most competing stock markets were destroyed. In contrast to nations like the United States, Swiss capital markets are relatively free from federal government restrictions. The market is largely self-policing, and this effective absence of regulatory bulk has enabled Switzerland to adapt quickly to market forces and to offer its domestic and international customers some of the lowest transaction costs in the world. The economic and financial crisis of 2007 to 2009 and the fact that some Swiss banks got heavily exposed to the collapse of asset prices in the US have caused many observers to question whether this focus on self-regulation was the best framework for public stock markets.

Switzerland has a rather specialized economic base; therefore, the range of Swiss stocks listed on its exchange is rather narrow. The country has many health care, industrial goods, and services companies, including banks, but automobile, mining, and shipping companies are rare or nonexistent. With today’s strong interdependence of stock market movements across the world, Swiss equities, too, are influenced by events in foreign markets . For example, the US equity market significantly influences movements in the Swiss market.² During the past four decades, the correlation between the US and the Swiss stock markets has grown substantially. Since November 1987, the average correlation has been above 0.7 on a scale where a perfect positive correlation equals 1.0. From 2020 to 2022, the average correlation has been 0.82. On average, the bond market correlations are smaller than the correlations in the stock markets. Figure 9.1 shows the correlations of Swiss stocks and bonds with the stock and bond markets in the United States and UK.

Fig. 9.1

(Source Authors’ calculations based on data obtained from Refinitiv Datastream)

Correlation of Swiss stock and bond markets with the US and UK markets

Types of Equity Instruments

In terms of legal claims, equity is subordinated to debt and is, thus, referred to as a firm’s risk capital. Lenders, such as banks or bond investors, are interested in a firm’s level of equity when assessing the risks associated with their investments. The relationship between levels of debt and equity is known as the debt-to-equity ratio (also called leverage or gearing ). Firms, therefore, closely follow this ratio when raising capital because higher leverage ratios mean greater risks and, therefore, more expensive borrowing costs. One of the major reasons debt has been so attractive to borrowers is because it has tax advantages that allow firms to enhance profits by increasing leverage . At the same time, the lower a company’s capital base relative to debt, the more vulnerable it is to financial distress. Nevertheless, for more than a century, the preferred method of tapping the Swiss capital markets has been utilizing debt issues, mainly because debt interests are tax deductible. At the same time, equity is tax disadvantaged in this regard.

Registered shares are the most common equity instrument issued by Swiss firms. Before most bearer shares were converted into registered shares by April 30, 2021, they were also widely used for financing. Since May 1, 2021, bearer shares are only permitted if they are either listed on a stock exchange or represent intermediated securities . Yet, even before this regulatory change, the proportion of registered shares had constantly grown during the past three decades. In the case of registered shares , the shareowner’s name is registered in the corporation’s books. This does not apply to bearer shares . Both share types incorporate the right to a pro rata portion of a firm’s residual equity claim. This is relevant in cases of liquidation and the distribution of earnings in the form of dividends .³ In certain situations (e.g., conflicts of interest between the parties involved in early-stage financing), it can be useful to distinguish between preferred shareholders and common shareholders. Hereby, the residual equity claim of common shareholders is subordinated to the preferred shareholders’ claim. Table 9.1 provides an overview of the types of equity instruments in Switzerland.

Table 9.1 Types of Equity Investments

In 2022, 276 share instruments are traded at SIX from 248 companies. Of these, 244 are single-class firms, whereas four companies have more than one share type issued.⁴ At the end of 2011, 51 (or 20 percent) were in bearer form, and 190 (or 76 percent) were registered. By June 2022, only 16 Swiss companies had bearer shares listed, most of them in conjunction with registered shares (Swatch, Gurit Holding AG), non-voting equity securities (NES) (Roche), or convertible bonds (Von Roll). Yet, some companies only had bearer shares listed (Dätwiler, C. Gavazzi, CI Com, ENR Russia Invest AG, Highlight Event and Entertainment, Kudelski, Schweiter Technologies, Tradition S.A., Phoenix Mecano, Perrot Duval, Youngtimers AG, Zwahlen & Mayr). Seven listed equity instruments were participation certificates (Schindler, two instruments of Lindt & Sprüngli, Basler Kantonalbank , Graubündner Kantonalbank, Basellandschaftliche Kantonalbank, and Thurgauer Kantonalbank).⁵ In Anglo-Saxon countries, all three types of equity (registered shares , bearer shares , participation certificates and NES ) are referred to as common stock or ordinary shares .

In 1988, Nestlé broke with the tradition of having different types of shares by unifying its capital structure and opening its registered shares to foreign investors. Since then, other large multinational Swiss companies have followed suit to make their stocks globally attractive and simplify their equity structure. In 1989, 40 percent of all Swiss firms had an equity structure consisting of three different classes of listed shares , and only 13 percent of all companies had unitary shares. In 2001, the amount of the latter increased to 71 percent. In June 2022, only four companies had two classes of equity listed on the Swiss stock exchange (Swatch, Roche, Schindler, Lindt & Sprüngli). Participation certificates play a minor role as a financing instrument (Table 9.2).

Table 9.2 Listed Swiss Shares by Type: May 2012 and June 2022

Swiss investors are free to buy shares anywhere in the world, and, with minor limitations, foreigners have the same rights in the Swiss capital markets as Swiss residents . However, in some cases, voting limits restrict foreigners’ participation. These restrictions were originally introduced in the by-laws of corporations during World War II . Later, the system was maintained to protect companies or their management against unfriendly takeovers.⁶

Since 1988, there has been a significant move in Switzerland toward liberalization (especially among large companies) and a simplification of share structures that have made the Swiss capital market more accessible to foreigners. Investors could purchase unlimited quantities of bearer shares , participation certificates , or non-voting equity securities of Swiss companies. For many companies, investors are registered as nominees in cases of unknown beneficial owners and are restricted from exercising voting rights beyond a certain limit. As a rule, Swiss markets are generally regarded as being among the most open in the world, and purchasing shares on the Swiss exchange is easy and cost-effective.

Types of Investors

Like Anglo-Saxon countries and in contrast to many other continental European countries , Switzerland’s wealth is strongly invested in public equities. Among all investors with Swiss bank deposits , the share of portfolios invested in stocks reached 52.9 percent in 2019, of which slightly more than 50 percent were invested in Swiss companies.⁷

As outlined in Chapter 6, Swiss pension funds , on average, held 75.6 percent of their total assets in Switzerland.⁸ In addition, the introduction of occupational pension funds in 1985 led to increasing flows into the equity market. At the end of 2020, there were 1,434 pension funds in Switzerland managing assets of about CHF 1,021 billion. Thereof, CHF 307 billion (30.1 percent) were invested in shares , of which 56 percent were foreign shares .⁹ In comparison, alternative assets accounted for CHF 89 billion (in 2019).¹⁰ The Swiss Federal social security fund managed total assets of CHF 47.2 billion. Thereof, CHF 9.7 billion were invested in stock markets, of which only 17.4 percent (CHF 1.7 billion) in Switzerland.¹¹ In addition, a majority of Swiss residents who have private pension plans (the so-called pillar 3a) are indirect shareholders. In 2020, the total volume in “3a” savings plans reached CHF 135 billion.¹²

Information on foreign and domestic ownership is not available, but one way to gain insights is to analyze the ownership of equity blocks. When shares are purchased in blocks, Switzerland requires disclosure of shareholders’ names.¹³ Both local and foreign investors, especially wealthy families, own a significant amount of equity held in blocks. In the past, some family-owned firms ensured control by issuing different classes of stock. In September 2022, investors from Switzerland accounted for 40.1 percent of reported blockholdings . Investors from the US (44.6 percent), UK (5.4 percent), Sweden (2.3 percent), South Africa (1.3 percent), Germany (1 percent), and other countries (5.3 percent) held the rest of reported blockholdings .¹⁴

Capital Flows on the Stock Market

The process by which a firm offers its shares to the public for the first time is called an initial public offering (IPO), and any subsequent offering to refinance or raise additional capital is called a secondary (or seasoned) equity offering. From the 132 IPOs and initial listings on the SIX Swiss Exchange between 2000 and July 2022, the majority occurred in 2000, 2005, 2008, and 2018. Figure 9.2 shows all Swiss share listings between 2000 and mid-2022. In 2010, the nation saw a significant increase in placement volume because Transocean and Weatherford International, both from the oil and gas sector, relocated to Switzerland and listed their shares on the SIX Swiss Exchange . The total volume in 2019 was mainly driven by the IPO of Alcon (CHF 28.37 billion), a spin-off from Novartis.

Fig. 9.2

All Swiss Listings between 2000 and mid-2022 (CHF millions) (Note For 2022, only the first half-year is reported. Source Authors’ calculation based on data from SIX Group, List of all Listings since 2000, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/shares/ipo-history.html#tfl_dlc19saXN0=/year/2022 [Accessed on July 13, 2022])

As can be seen in Fig. 9.3, until 2009, the bulk of equity issues was not due to initial public offerings (IPOs) but to secondary or seasoned equity offerings (SEOs). This has changed, however, since 2010. In the following decade, more money has flown into IPOs than SEOs . Companies try to keep invested capital on efficient levels and reward investors for the risks of their investments. As a result, in most of the years, the outflow of funds from Swiss equity markets to investors through dividend payments, share repurchases, and reductions of nominal share values, has been more significant than the funds raised from issuing shares and participation certificates (see Fig. 9.4).

Fig. 9.3

(Source SIX Group, Listings on the Swiss Stock Exchange, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/shares/ipo-history.html#tfl_dlc19saXN0=/year/2022 [Accessed on July 20, 2022]. Authors calculations based on data from Vontobel Equity Research Switzerland: Aktienmarkt Schweiz—Kapitalmarkttransaktionen (2008, 2009, 2010 editions), Bank Vontobel, Zurich. Data on SEOs received from Vontobel Capital Advisory [July 20, 2022])

All Swiss Equity issues 1982 to 2021 (CHF millions)

Fig. 9.4

(Source Swiss National Bank , Capital movements in the shares of domestic companies, https://data.snb.ch/en/topics/finma/cube/capmovshare [Accessed on August 28, 2022])

Swiss Equity -related capital flows 1996 to June 2022 (CHF billions)

In terms of market capitalization, the three listings from the oil and gas sector mentioned above dominated the amount of capital raised by new listings since 2000 (see Table 9.3). Apart from those, the latest listings originated from a broad spectrum of industries.

Table 9.3 Top 20 New Swiss Listings between 2000 and 2022

The opposite transaction from an IPO is referred to as going private . In this case, a public-equity firm becomes private (i.e., its stock is no longer traded on the open market). Going privates usually occur when the management of the company, another firm or a group of investors buys out public shareholders. These transactions often involve a significant amount of debt. If buyers finance a portion of the stock acquisition with borrowed funds , it is called a leveraged buyout. The SIX Swiss Exchange recorded several delistings in the past years: 2021 (2), 2020 (6), 2019 (10), 2018 (6), and 2017 (13).¹⁵ For majority shareholders holding 98 or more percent of voting rights, there is an option to force the remaining shareholders of the listed firm to sell their shares . This procedure is referred to as a “squeeze out.”¹⁶

Venture Capital

In contrast to public equity , private equity is not listed on a stock exchange . One speaks of a private offering if the firm raises this type of equity. Venture capital is an essential segment of the private equity market .¹⁷ Start-up firms with high potential for long-term growth often raise equity capital from venture capitalists. These investors specialize in financing new firms with equity investments. Venture capital is an important source of equity financing for firms at earlier stages of their lifecycles. Firms seeking venture capital are predominantly in high-tech sectors, such as information technology, energy, and life sciences, and they typically engage in new and innovative products and services. Investments in these firms entail a high level of risk and potentially high returns for the investors. Venture capital investments are typically made in a series of financing stages as the start-up firm faces repeated capital requirements as its business operations grow. Successful business ventures and other types of private equity financed firms may finally go public via an IPO .

As a general rule, newly listed companies on the Swiss stock market are predominantly well-established businesses that may, for instance, need capital for growth. This observation is in sharp contrast to the United States, where comparatively young venture companies go public because they can raise billions of dollars each year on the stock markets. Many US high-growth companies (e.g., Google , Intel, Hewlett-Packard, Amgen, and Genentech) started with venture capital funding.

From 2001 to 2012, between CHF 400 and 450 million on average were raised and invested in venture capital annually, corresponding to roughly 0.5–0.6 per mill of Swiss GDP . Since 2012, invested volumes have grown remarkably, reaching CHF 3.059 billion or 4 per mill of Swiss GDP in 2021. Hereby, the most important sectors in terms of invested capital were Financial Technology (FinTech , 28 percent), Biotechnology (25 percent), Information and Communication Technology (ICT, 22 percent), and Medical Technology (8 percent).¹⁸ The market growth has been driven by new university spin-offs , a greater willingness of experts and university graduates to found start-ups , growing professionalism of entrepreneurs due to a variety of education and networking initiatives, and more funds flowing into seed capital and venture capital .

Despite the substantial growth Switzerland has experienced in venture capital volumes, this may not be sufficient for an inland that lacks natural resources to stay at the forefront of technological development and to keep up economic growth in the long run. Several private and public initiatives, such as the Swiss Future Fund,¹⁹ aim at providing diversified investment structures and better accessibility to venture capital for institutional investors . The ultimate goal is to leverage Switzerland’s excellent research output into marketable products to secure the country’s wealth in the future.

Listing Requirements for Swiss Equities

According to the Financial Market Infrastructure Act (FinMIA) of 2015, the Regulatory Board of the Swiss Stock Exchange decides on the admission of securities to the SIX Swiss Exchange . Also, it is the most senior supervisory body ensuring that issuers fulfill their obligations during listing . The listing requirements are defined in the rules of the SIX Exchange Regulation .²⁰ The most important provisions for equity to be listed following the main standard are:

• The issuer must have existed as a company for at least three years (exemptions possible) and must have produced annual financial statements (in compliance with the applicable reporting standards) for the three full financial years preceding the listing application (Art. 11 & 12).

• On the first day of trading , the issuer’s reported equity capital must be at least CHF 25 million, under the financial reporting standard used in the listing prospectus (Art. 15).

• The securities must have a free float of at least 20 percent. This means that at least 20 percent of all outstanding securities must be in public ownership. Furthermore, the capitalization of the free-floating securities must amount to at least CHF 25 million. These provisions do not apply in the case of a simple increase in the number of securities already listed (Art. 19 & 20).

• A listing prospectus must be published in advance of the listing and has to be presented in such a way that enables a competent investor to assess the issuer’s quality and the securities’ characteristics. The listing prospectus must be published in one of the following three forms: (1) Printed in at least one newspaper with a national distribution; (2) Provided free of charge in printed form at the issuer’s head office and at those financial institutions that are placing or selling the securities ; (3) Electronic publication on the issuer’s website and possibly also on the websites of those financial institutions that are placing or selling the securities (Art. 27).²¹

• Equities with transfer restrictions may be listed if the restrictions will not affect the proper functioning of the market (Art. 21).

• After the issuing company has submitted a listing application to the SIX Exchange’s Regulation Division, the Regulatory Board reviews and approves it, given that all listing requirements are fulfilled (Art. 3).

Regulatory Framework

Switzerland’s financial markets regulatory framework is not too restrictive compared to other countries, largely because it is self-regulated. The relevant legal rules for equity transactions consist primarily of the Swiss Code of Obligations (SCO) of 1911, which includes contract law, company law, and securities law and applies to all kinds of firms. FinMIA of 2015 is another critical piece of legislation for listed corporations because it regulates, among other things, disclosures of shareholdings and public takeover transactions . In addition, mergers and takeovers may be subject to the Merger Act (MerA) of 2003.

The SIX Swiss Exchange Listing Rules (see Chapter 2, Finanzplatz Schweiz – Finance Center Switzerland) are mainly concerned with transparency for investors, notably financial, and other reporting requirements. For instance, Article 51 of the SIX Swiss Exchange Listing Rules requires public companies to prepare annual and interim financial statements by recognized financial reporting standards. Principally, this means the application of IFRS.²² For issuers incorporated in Switzerland, other accounting standards are also permitted, such as US GAAP and Swiss GAAP FER. Table 9.4 summarizes the recognized accounting standards for issuers incorporated in Switzerland. Issuers not incorporated in Switzerland may in addition also apply the accounting standards of their home countries, provided the SIX Swiss Exchange has recognized them. The approved standards comprise European Union (EU) IFRS and Japanese GAAP.²³ Most Swiss equities are not traded on the public stock exchange and use Swiss GAAP FER.

Table 9.4 Recognized Accounting Standards for Public Issuers Incorporated in Switzerland

Many countries introduced corporate governance codes in the aftermath of major US corporate scandals during the early 2000s, such as Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom. For listed firms in Switzerland, corporate governance is subject to both the Swiss Code of Best Practice for Corporate Governance (SCBP) from economiesuisse (an organization representing the interests of the Swiss economy) and the Directive on Information Relating to Corporate Governance (DCG)²⁴ of the SIX Swiss Exchange . While SCBP consists of recommendations, the DCG requires firms to disclose critical corporate-governance information on a comply-or-explain basis. Otherwise, there are no further noteworthy Swiss restrictions in this context, but dual-listed firms are subject to additional rules. For example, companies operating in the United States must obey the US Sarbanes–Oxley Act (SOX) of 2002 and the New York Stock Exchange (NYSE) corporate governance rules for cross-listed firms on the NYSE.

Securities Market Overview

Primary market activity is mirrored in the aggregate volume issued and the number of listings . Due to the limited maturity of bond issues and companies having more than one bond listed, the typical bond volume is smaller than the volume of a stock listing . As a result, historically, the number of bonds listed on the Swiss market has been much higher than the number of listed shares , but the proportions have varied considerably.

Listings

After the year 2000, the ratio of listed bonds to shares decreased from about 3.8 in 2000 to 3.1 in 2005 before increasing again in recent years due to the low-interest rate environment. As of July 2022, the number of listed bonds was 6.1 times the number of listed shares.²⁵ While the number of Swiss franc domestic bonds decreased steadily from 961 in 2000 to 579 in 2011, it increased again to 678 by July 2022 due to high demand from both the private and the public sector. By contrast, Swiss franc foreign and international bonds (denominated in foreign currencies) increased to 959 in 2011 and 1,020 in 2022, but they fluctuated greatly, moving from 782 in 2000 to 592 in 2004. Thus, over this period, foreign entities were tapping the Swiss capital markets by issuing debt rather than equity , with such debt issues accounting for most of Switzerland’s outstanding bond listings . The resulting number of listed securities (excluding structured products and warrants ) reached 2,523 at year-end 2011 and 4,699 in June 2022.

The number of listed structured products and warrants has grown considerably after the year 2000, reaching 48,355 listed products in May 2022. Still, the exchange value of these securities is typically meager because of the option -like character of many of these products. Figure 9.5 reveals the meteoric rise in structured product listings on the SIX Swiss Exchange during the last two decades. Due to the continuous innovation in this equity category, investors are offered a broad range of the still-growing number of instruments. The chart provides an overview of the number of listed securities on the SIX Swiss Exchange . Structured Swiss products and warrants are listed on SIX Structured Products Exchange, formerly Scoach Switzerland (Scoach Schweiz AG ). Scoach was a joint venture between SIX Group and Deutsche Börse that was functional from 2007 to 2013.²⁶

Fig. 9.5

(Source Authors’ calculations based on data available from SIX Group, Jahresstatistiken and Top Traded Securities—June 2022, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/statistics/monthly-reports.html#tfl_V0c19saXN0=/year/2022 [Accessed on July 11, 2022])

Number of listed securities on the SIX Swiss exchange: 2000, 2011, and 2022 (Structured products and warrants on secondary axis)

Structured products is the umbrella term used to describe financial instruments that generate different payoffs depending on the values of underliers, such as equities, bonds, indices , and currencies. Hence, they combine the various features and benefits of different underliers. They are organized into four major subcategories: leverage , participation, yield optimization , and capital protection products (see Table 9.5):

Table 9.5 Number of Listed Structured Products February 2012 and May 2022

• Leverage products feature a payoff depending more than proportionately on the price changes of the underlying instrument. Some products exhibit linear payoffs , such as mini futures and constant leverage certificates, whereas other products are combined with options , such as knock-out warrants .

• Participation products provide a payoff that is often positively, sometimes negatively, linked to the price changes of the underlying financial asset. The most common participation products are tracker certificates. Payoffs may also have kinks, e.g., in the case of outperformance certificates providing excess participation in the upside.

• Yield optimization or enhancement products allow participating in a payoff of a financial instrument by investing less than the instrument’s market price. This benefit comes at the cost of giving the upside potential away. The most common yield enhancement products are discount certificates and barrier reverse convertibles.

• Capital protection products guarantee a minimum repayment, but they also participate in the upside potential of the underlying financial asset.

Market Value

Although there are more listed bonds than shares , the market value of equities listed on the SIX Swiss Exchange (CHF 2,002 billion, year-end 2020) significantly exceeded the market value of bonds (CHF 342 billion, year-end 2020). The market value of equities showed considerable fluctuations that were mainly following the development of global equity markets. Until 2004, total equity value decreased to 73 percent of its (nominal) level in 2000 but then regained and increased to 115 percent of its 2000 value by 2006, before again decreasing during the global financial crisis of 2008. Between 2011 and 2020, the market value of equities listed on the SIX Swiss Exchange doubled. These fluctuations are in line with global economic developments during the past decade. Figure 9.6 shows the market capitalizations of stocks and bonds on the SIX Swiss Exchange .

Fig. 9.6

(Source Authors’ calculations based on data from SIX Group, Bond Explorer, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/bonds/bond-explorer.html (for bonds) [Accessed on July 18, 2022]; SNB, https://data.snb.ch/en/topics/finma/cube/capmovshareSIX (for shares) [Accessed on August 23, 2022])

Market capitalization of securities listed on the SIX Swiss Exchange (CHF billion): December 2000 to June 2022

As can be seen from a long-term comparison based on the period from 1980 to 2020, the aggregate market value of listed stocks and bonds in Switzerland has diverged considerably over the years. For some years after 1990, the bond market exceeded the listed stocks in volume. However, by 2020, the stock market has outdistanced the bond market by 485 percent. Between 1980 and 2020, the stock market grew at an average annual rate of 7.9 percent, and the bond market only at an average yearly rate of 3.8 percent (see Fig. 9.7). While the bond market value developed steadily throughout this period, Swiss shares experienced two significant dips: in 2001 to 2002 after the dot-com bubble burst and in 2008 due to the US subprime mortgage market collapse that led to the global financial crisis. After the dip in spring 2020 due to the COVID-19 lockdown, the market rebounded during fall 2020. A more significant dip happened in 2022 due to Russia’s invasion of Ukraine and the rising inflation . As of July 2022, the Swiss All Shares Index (SSIRT) had a market capitalization of CHF 1.57 trillion.²⁷

Fig. 9.7

(Source Authors’ calculations based on data from SIX Group, Bond Explorer, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/bonds/bond-explorer.html (for bonds) [Accessed on July 18, 2022]; SNB, https://data.snb.ch/en/topics/finma/cube/capmovshareSIX (for shares) [Accessed on August 23, 2022])

Market value of securities listed on Swiss Stock Exchange : 1980 to 2022

Sector and Company Overview

In 2022, healthcare companies dominated Swiss equity markets, accounting for 36 percent of the total market value (see Fig. 9.8). The consumer non-durables accounted for 27 percent, but 21 percent could be attributed to Nestlé alone. Finance accounted for only about 17 percent.

Fig. 9.8

(Source SIX, Swiss Performance Index SPI Total Return Factsheet, https://www.six-group.com/dam/download/market-data/indices/factsheets/six-factsheet-stat-sxge-en.pdf [Accessed on October 15, 2022])

Swiss listed Equity Market values by industry as of September 30, 2022

The Swiss-listed stock market was dominated by a handful of companies operating in four major industries. Ten of these companies accounted for about 70 percent of the total market value of the SPI and 84 percent of the SMI (Table 9.6). Four of the top 10 companies were from the pharmaceutical and chemical sectors, and there was one from each of the following industries: food, insurance , industrial goods and services, banking, luxury goods, and healthcare services.

Table 9.6 20 SMI Companies and Index Weights as of September 30, 2022

By end of September 2022, Nestlé, the largest company, accounted for 18.5 percent of the Swiss Market Index (SPI). The three largest firms (Nestlé, Roche, Novartis) accounted for 54.8 percent of the total SMI market value and for 49.3 percent of the total SPI market value. In 1994, these three companies accounted for only 37 percent. This development was driven by the growth of these companies and the consolidation of other sectors, such as banking and insurance .

SPI companies had a total market value of CHF 1.502 trillion in July 2022. Companies comprising the Swiss Market Index (SMI) were valued in July 2022 at an aggregate of CHF 1.095 trillion (see Table 9.7). BX Swiss exchange is the second official stock exchange in Switzerland and a trading platform for smaller firms. Still today, it is often referred to as “Berner Börse”, as the Berne Stock Exchange, founded in 1884, originated from the Berne Banking Association that was founded in 1880.²⁸ In 2017, BX Swiss was sold to Börse Stuttgart, which since 2018 has been the sole owner. Its main index is the BX Swiss All Share Index comprising 202 shares . It contains shares listed on BX Swiss and SIX Swiss Exchange . As an alternative, equity can be traded on OTC-X , which is a trading platform provided by Berner Kantonalbank (BEKB) and currently lists 246 shares with a total market capitalization of CHF 17.95 billion.²⁹

Table 9.7 Index Comparison by Market Values: Data in July 2022

American Depositary Receipts

Swiss companies have also increased their presence as issuers in foreign markets . In 2022, 49 Swiss firms had an American Depositary Receipts (ADR) program in the United States that represented the ownership of shares in those Swiss firms.³⁰ ADRs are usually issued as fractional values of the security traded in Switzerland. One of the primary reasons for their issuance is the expectation of enhanced company access to US capital markets .

ADRs allow non-US companies to access US investors in a way that is more convenient than a direct listing on a US stock exchange .³¹ A non-US company can issue ADRs in collaboration with a depositary sponsor, usually a US bank or investment institution. Banks such as BNY Mellon or Citi sponsor ADRs of non-US firms.³² The sponsor keeps a defined number of company shares in a depositary and allows US investors to buy ADRs on these shares. The ADRs can then be traded on the stock markets. Technically with an ADR , an investor does not own the foreign stock directly. Instead, the ADR entitles the investor to a fraction of one or more shares of the foreign stock. ADRs are quoted in US dollars, and dividends are paid in dollars. ADRs offer advantages for US investors, who can invest in foreign companies without facing the difficulties of cross-border trades.³³

Four Swiss companies trade their ADRs on the New York Stock Exchange (ABB, Credit Suisse , Novartis, and STMicroelectronics). Other major companies, such as Roche, Nestlé, and Swisscom, trade their ADRs over-the-counter (OTC) or have their ADRs listed on NASDAQ, such as Givaudan and Molecular Partners. Swisscom was present on the NYSE from 1998 to 2007, until it decided to deregister with the SEC following the introduction of the Sarbanes–Oxley Act in 2002.

Trading Activities

In line with the relative market capitalizations of shares and bonds, share turnover on the SIX Swiss Exchange far outweighs the turnover of bonds. Since the year 2000, the share of foreign stocks in turnover and listed securities has declined, whereas exchange-traded funds (ETFs) have exhibited strong growth.

Turnover in Stocks and Bonds

Figure 9.9 shows the yearly turnover on the SIX Swiss Stock Exchange from 2000 to mid-2022. In 2021, the cumulative turnover on the SIX Swiss Exchange amounted to CHF 1,282 billion. Equities accounted for 80.5 percent, investment funds for 7.6 percent, bonds for 10.4 percent, and structured products and warrants for 1.6 percent of the total trading volume. After the peaks in 2006, 2007, and 2008, turnover in 2012 amounted to only 35 percent of its (nominal) level in 2007. Equity turnover fell to 26 percent of its (nominal) level in 2007, while bond turnover slightly increased by 8 percent. After the years preceding the financial crisis of 2008, featuring unusual activity in the equity market, volumes came down close to their longtime levels.

Fig. 9.9

(Source Swiss National Bank , Securities turnover on the Swiss stock exchange, https://data.snb.ch/en/topics/finma/cube/capweums?fromDate=2000-01&toDate=2022-06&dimSel=D0(IT0,AT0,T0,IT1,AT1,T1,A,SPO,T2,ISMIT) [Accessed on July 28, 2022])

Total Turnover per Year on SIX Swiss Stock Exchange: 2000 to mid-2022 (CHF millions)

In 2021, Swiss shares accounted for more than 76 percent of the total on-order book turnover ³⁴ on the Swiss stock exchange . By contrast, the turnover generated by foreign shares was only 4 percent. The meager portion of foreign share turnover was in line with the continuing trend of foreign share delistings , mainly because foreign companies withdrew their secondary listing in the Swiss market. For a more detailed discussion of foreign shares , see below.

Because turnover is often driven by changes in market values (i.e., the same number of trades may result in different levels of turnover if share prices vary with time), the number of trades is a purer measure of trading activity.³⁵ In this respect, the number of bond trades steadily decreased from 2001 to 2007 but regained strength thereafter due to increased debt financing by corporations and the public sector. As a result, this increase happened in the Swiss Bonds segment, as depicted in Fig. 9.10. At the same time, the number of share trades is almost seven-fold in 2022 compared to 2001 and is now around 60 million trades per year. The lower number of bond trades and its less variant level partly mirror the typical buy-and-hold strategies entailed with these securities . At the same time, the number of trades in foreign bonds has shrunk massively and, in 2022, was only around 18 percent of the transactions twenty years ago.

Fig. 9.10

(Source Authors’ calculations based on data from SIX Group (Annual Statistics). For 2022: Top Traded Securities—June 2022, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/statistics/monthly-reports.html#tfl_V0c19saXN0=/year/2022 [Accessed on July 11, 2022])

Number of trades (Thousands): 2001, 2011, and 2022

Regarding individual shares , Nestlé’s registered shares were the most actively traded every month in 2022, accounting for 10.02 percent of total Swiss stock turnover in June 2022. Roche, Novartis, and UBS followed Nestlé (see Table 9.8). The top 10 firms accounted for 45.03 percent of total turnover .

Table 9.8 Top Ten Traded Swiss Shares on SIX Swiss Exchange in June 2022

Number of Listed Securities

Table 9.9 compares and contrasts the number and type of securities listed on the SIX Swiss Exchange in 1994, 2011, and 2022. At the end of 1994, a total of 3,169 securities were listed on the Swiss Stock exchange . Thereof, domestic Swiss franc (44 percent) and foreign Swiss franc (24 percent) bonds accounted for more than two-thirds of the total number of listed securities . Swiss and foreign shares accounted for 18 percent, and the remaining securities (14 percent) were structured products and warrants .

Table 9.9 Number of Listed Securities on the Swiss Exchange: 1994, 2011, and 2022

Since 1994, the composition of listed securities has experienced a significant transformation. Apart from dramatic increases in the number of structured products and warrants , significant changes have occurred in the equity and bond segments of the market. Swiss share listings fell from 321 to 244. By contrast, exchange-traded funds (ETFs) and exchange-traded products (ETPs ) gained importance as they represent a convenient and reasonably priced alternative for investing in a broad portfolio of stocks, bonds, and other assets.³⁶ In June 2022, 1,767 ETFs and ETPs were listed on the Swiss exchange. Figure 9.11 shows the development since 1877, the earliest year where data is available. After more than a century of steady growth, the number of listed equities on the Swiss Stock Exchange peaked in 1993. At that time, all 600 listed equities consisted of 339 Swiss and 261 foreign shares .

Fig. 9.11

(Source Authors’ calculations based on data from SIX Group, Jahresstatistiken: Kotierte Wertpapiere und Emittenten, 1995–2011. Also see Zürcher Börse, Jahresbericht 1994, Zurich. SIX Group, Top Traded Securities—June 2022, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/statistics/monthly-reports.html#tfl_V0c19saXN0=/year/2022 [Accessed on July 11, 2022]. For investment funds, see https://www.six-group.com/en/newsroom/news/the-swiss-stock-exchange/2022/six-sif-600.html, for ETFs, see https://www.six-group.com/dam/download/the-swiss-stock-exchange/trading/markets/etfs/market-report/market-report-etf-2022-q1-en.pdf [Accessed on August 15, 2022]).

Number of listed equities, ETFs , and Funds on the Swiss Stock Exchange 1877–2022

Foreign Shares

Listings of foreign shares grew strongly between 1970 and 1990. During this period, investors showed increasingly more significant interest in international investments. To reach these potential investors, many international companies expanded their listings on foreign exchanges . Between 1993 and 2022, the structure of listed equities on the Swiss exchange shifted significantly. Whereas the number of Swiss shares fell from 321 at the end of 1994 to 244 by June 2022, foreign share listings experienced a more significant decline, falling from 252 to 28, mainly driven by the development of liquid equity markets in the issuers ’ countries of origin. Due to regulatory and technological developments, investors have increased direct access to stock exchanges outside their countries of residence . Given that foreign share listings are a way of tapping foreign capital, the withholding tax on foreign investment was another harmful factor. The tax was neither conducive to such investments nor the attractiveness of foreign share listings in Switzerland. Because of its negative impact, numerous political efforts have been to abandon the withholding tax on foreign investments. The trading volume of foreign shares on the Swiss Stock Exchange decreased continuously.

Exchange-Traded Funds

During the last two decades, a new equity class called exchange-traded funds (ETFs) has emerged and continuously grown in importance. ETFs were designed to track the performance of broad stock indices but now include other asset classes, such as government and corporate bonds, money market instruments, commodities, and real estate companies. To investors, they offer the opportunity to participate in the performance of broad market benchmarks easily. The first ETFs were listed on the Swiss Stock Exchange in 2001. By the end of 2011, ETFs and ETPs already accounted for 685 products or almost 70 percent of the total number of listed equities (985). In 2022, they accounted for 1,767 products or 85 percent of all listed equity instruments (2086). Because of the broad spectrum of underlying asset classes, SIX Swiss Exchange reports ETFs separately and not as a part of equity instruments.

Shares in ETFs can be traded at any time during a trading day due to their listing on a stock exchange . Most ETFs track a particular index (passively managed) and, therefore, have low operating expenses. As a critical point, ETFs do not always fully replicate the underlying asset portfolio by buying the stocks in the proportion of their representation in the index. Instead, ETF managers may use the sampling method and buy just the most important and representative stocks of an index. This is cheaper than full replication but comes with the risk of more significant tracking errors between the ETF and the index.

From a regulative perspective, a critical point with all types of indirect investments , such as investment funds and exchange-traded funds , is how and by whom voting rights are exercised. Voting rights are a vital governance instrument for shareholders to control the corporations they’re invested. Investors in ETFs cannot exercise their voting rights in the companies they hold indirectly. Whether the ETF providers are entitled to exercise their voting rights depends on the replication method used. In case of a full replication, the ETF physically holds all underlying stocks of the ETF portfolio and can therefore exercise voting rights. This is also the case for partial replication or sampling, where only a selection of the most important stocks of an index is held physically. Typically, the ETF provider either votes with the company or delegates the exercise of the voting rights to a proxy voting company. However, in the case of ETFs using synthetic replication, the exercise of voting rights is not possible. Either way, ETF investing leads to a shifting of voting rights away from shareholders to proxy advisors and strengthens the position of the board of directors of the companies if the ETF management decides to follow their voting recommendation.

Stock Market Indices

Professional investors and the general public are interested in the performance of equity markets and certain groups or sectors, such as geographic regions, countries, industries, and companies (e.g., small, mid, and large caps). Among the best-known performance measures are indices that are calculated by exchanges and private information providers (e.g., STOXX, MSCI, and Dow Jones). Value-weighted indices relate the current market value of a group of shares to their value at some base date. In contrast, equally weighted indices, like the Dow Jones Industrial Average , calculate current values without relating them to some base date. Figure 9.12 gives an overview of the most important indices at SIX Swiss Exchange . These indices are explained below.

Fig. 9.12

(Source Authors’ calculations based on data from SIX Group, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/indices/equity-indices.html? [Accessed on July 11, 2022])

Number of shares included in the indices of the SIX Swiss Exchange

Swiss All Shares Index

The Swiss All Shares Index comprises all shares listed on the SIX Swiss Exchange , including Swiss- and foreign-domiciled companies, and those domiciled in the Principality of Liechtenstein .³⁷ The index consists (as of July 4, 2022) of 232 shares.

SPI Index Family

The Swiss Performance Index (SPI) and the Swiss Market Index (SMI) are the most widely recognized Swiss equity indices . The SPI comprises practically all companies domiciled in Switzerland and the Principality of Liechtenstein , with their stock listed on the SIX Swiss Exchange . It is referred to as Switzerland’s overall stock market index (only investment companies and shares with less than 20 percent free float are excluded from the SPI). The SPI is free float adjusted, i.e., only the tradable portion of shares is used for the index calculation. The index’s base date is June 1, 1987, when the index was fixed at 1,000 points. The SPI is calculated as a total return index (i.e., adjusted for dividend payments).³⁸

The SPI is also broken down into various sub-indices :

• SPI sub-indices by total market capitalization (SPI Large, SPI Mid, SPI Small, SPI Large and Middle, and SPI Small and Middle)

• SPI 20: This index comprises the 20 largest stocks of the SPI.

• SPI Extra: This index comprises all SPI stocks not included in the SMI .

• SPI ex SLI: This index comprises all SPI stocks not included in the SLI.

• SPI Sectors: Sector-specific indices are based on the Industry Classification Benchmark (ICB) classification taxonomy and comprise basic materials, industrials, consumer goods, health care, consumer services, telecommunications, utilities, financials, and technology.

All sub-indices are calculated as a performance index (dividend -adjusted) and price index.

SPI ESG Indices

The SPI ESG index comprises stocks from the SPI universe with a minimum ESG Impact Rating of C + and less than 5 percent sales in critical sectors, according to Inrate, that are not listed on the exclusion list of the Swiss Association for Responsible Investments (SVVK). In addition, the SPI ESG Weighted index weighs its components with the ESG Impact Rating. The SPI ESG Select index follows the same logic but selects stocks until they reach half the number of components of the SPI. SPI ESG Multi and Single Premia indices (ESG Strategy indices) weigh their components about their volatility contribution.³⁹

SPI Gender Equality Index

For inclusion in the SPI Gender Equality index, companies must have 20 to 80 percent women on the board of directors and 15 to 85 percent women on the management board.⁴⁰

Figure 9.13 shows the index development of SPI, SPI ESG , and SPI Gender Equality, standardized to 100 as of March 20, 2015. It also shows the SXI Switzerland Sustainability 25 index, which contains the 25 companies with the highest sustainability score. All indices are presented as total return indices.

Fig. 9.13

(Note Because of different base dates, all index values are standardized at 100 on March 20, 2015 Source Authors’ calculations based on data from SIX Group, Index Data Center, https://www.six-group.com/exchanges/indices/data_centre/esg/spi_esg_baskets_en.html and https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/indices/equity-indices.html [Accessed on July 16, 2022])

SPI and sustainability, ESG , and Gender Equality sub-indices

SMI Index Family

The SMI comprises the 20 largest stocks from the SPI universe. It is the most important equity index in Switzerland and is referred to as the blue-chip index. This index’s base date is June 30, 1988, when it started at 1,500 points. The SMI is calculated as a pure price index (i.e., in contrast to the SPI, it does not include dividend payments).⁴¹ Figure 9.14 shows the SMI and SPI index values since their inception.

Fig. 9.14

(Source Authors’ calculations based on data from SIX Group, https://www.six-group.com/exchanges/indices/data_centre/index_overview_en.html [Accessed on July 12, 2022]Footnote

For a performance overview of all SIX equity indices , see https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/indices/equity-indices.html [Accessed on August 15, 2022].

)

SPI and SMI : Development of index values June 1988 to July 2022

• SMI MID (SMIM): This index is a mid-cap index comprising the 30 largest stocks not included in the SMI .

• SMI Expanded: This index consists of the 50 stocks from the SMI and the SMIM together.

Further Indices

• SLI: The Swiss Leader Index (SLI) comprises the 20 SMI stocks plus the ten largest stocks from the SMIM, representing the 30 largest and most liquid stocks.

• UBS 100: The UBS 100 index comprises the 100 largest stocks in the SPI by market capitalization.

• SXI Special Industry indices: SXI Life Sciences, SXI Bio + Medtech

• SXI Switzerland Sustainability 25: This index contains the 25 companies with the highest sustainability score.

• SXI Real Estate: This segment comprises different indices: SXI RE Selected NAV/Eq Wght, SXI Real Estate Broad (SXI Real Estate Funds Broad, SXI Real Estate Shares Broad), SXI Swiss Real Estate (SXI Swiss Real Estate Funds, SXI Swiss Real Estate Shares), SXI Real Estate All Shares

• Strategy Indices

Stock Market Performance

Table 9.10 shows the stock price performance of the SMI and SPI and selected SMI firms during the last 32 years. Richemont, a luxury goods group, achieved the top ranking with an average annual total return⁴³ of 14.2 percent. The second-best performer was Roche, which showed positive returns in every five-year window. Roche achieved an average annual total return of 12.3 percent for the same period. Swiss Life and Zurich Insurance showed inferior returns between 2000 and 2004, while UBS was hit during the financial crisis in 2008. Over the 32 years from January 1990 to December 2021, Credit Suisse exhibited an average annual return of 0 percent.

Table 9.10 Stock Performance 1990 to 2021 (average Total Returns)

Table 9.11 shows stock price performance and dividend yields from 1990 to 2021 for nine SMI companies. The average returns are calculated based on the SMI’s current composition. As can be seen, the three top firms outperformed the SMI in terms of price development due to the growth of their business fields (food and pharmaceuticals).

Table 9.11 Financial Performance Data: 1990 to 2021

Table 9.12 shows the annual performance of listed bonds and stocks between 1926 and 2021. Strictly based on historical returns, the performance of equity -loaded portfolios was superior to debt-loaded ones. Even though both investments had positive real returns, neither stocks nor bonds proved to be ideal hedges against inflation , but shares were the better of the two.

Table 9.12 Annual Performance of All Listed Stocks and Bonds: 1925–2021 (1925 = Base Year)

During the 96 years between 1925 and 2021, the average annual rates of return on Swiss equities (capital gains plus yearly reinvested dividends ) for shares and bonds were 9.8 percent and 4.2 percent, respectively. Real returns, net of inflation , were 7.8 percent and 2.3 percent, respectively (see Fig. 9.15). The calculated annual risk (volatility ) on Swiss stocks was more than five times larger than for Swiss bonds. For Swiss stocks, the risk, measured as the standard deviation of annual returns, was 20.0 percent between 1925 and 2021, whereas the risk measurement for Swiss bonds was only 3.8 percent. At the same time, a longer investment horizon substantially reduced the risk of Swiss stocks.

Fig. 9.15

(Source Authors’ calculations based on data obtained from Pictet Wealth Management: Performance Update for Swiss Shares and Bonds, 1926–2021, 21 February 2022. https://www.group.pictet/media-relations/historical-performance-shares-and-bonds-switzerland [Accessed on March 16, 2022])

Nominal and real value of shares and bonds in Switzerland: 1925 to 2021

Foreign Shares

While at year-end 2011, 34 foreign companies had their shares listed on the SIX Swiss Exchange , this number dropped to 28 by June 2022 (based on a total of 248 listed companies). Thereof, 11 companies had a primary listing (i.e., the shares were included in the Swiss Performance Index ).⁴⁴ The remainder (17) comprised secondary listed shares (i.e., shares with a primary listing abroad). Among the latter are some of the world’s largest companies. Table 9.13 shows the market values of the top 10 foreign companies with a secondary listing in the Swiss market in July 2022.

Table 9.13 Top 10 Foreign Companies on SIX with Secondary Listings (by Market Value) (Data as of July 2022)

The turnover of secondary listed shares is typically relatively low due to the lower importance compared to the market where the companies got their primary listing . By far, the highest trading activity in the segment of foreign shares in 2022 was for ams-OSRAM, a sensors and optical solutions manufacturing company headquartered in Austria. With a primary listing at the Swiss Stock Exchange (see Table 9.14), it accounted for more than 85 percent of the top 10 foreign share trading volume. Behind ams-OSRAM, the share trading volume dropped significantly.

Table 9.14 Top 10 Foreign Companies on SIX by Turnover as of July 2022

Foreign share listings on the Swiss Stock Exchange peaked in 1993, marking the end of a period of steady increases that started in the 1970s. During this period, companies reacted to investors’ growing interest in international investments by expanding their listings on foreign exchanges , but since 1993, foreign share listings on the Swiss Stock Exchange have declined continuously (see Fig. 9.16). This ongoing decline has been caused mainly by significant technological and regulatory developments which have happened during the past two decades. Today, investors have direct access to stock exchanges outside of their countries of residence . While dual or multiple listings have been important in the past to get access to investors abroad, this appears to be less critical nowadays. With a turnover volume of CHF 65 billion and 550 million shares traded in the first half-year of 2022, Nestlé ranked number one with regard to the traded amount. However, 1.67 billion Credit Suisse shares and 1.43 billion UBS shares were traded in the same period. The top 10 Swiss companies accounted for 9.9 billion traded shares on the Swiss Stock Exchange from January to June 2022. In contrast, the top 10 foreign companies only accounted for 264 million traded shares in the same six months. This volume represents about 2.7 percent of the activity of the top 10 Swiss companies.⁴⁵

Fig. 9.16

(Source Author’s calculations based on data from Zürcher Börse, Jahresbericht 1994; SIX Group, Listed Securities and Issuers 1995–2011; SIX Group, Share Explorer, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/shares/share-explorer.html [Accessed on July 12, 2022])

Number of listed foreign shares on the Swiss Stock Exchange , 1990 to 2022

Figure 9.17 illustrates the reduction of foreign share listings by country of origin. This development was primarily driven by the opening of exchanges and better financing opportunities in the countries of origin of the respective companies. Between 1995 and 2012, share listings of companies based in the United States and Canada decreased from 108 to 19 (-82 percent) and to 12 in 2022. Of the 41 German shares listed in 1995, only five remained by 2012 (-88 percent) and none by 2022. The share listings of Dutch and British companies dropped by 89 percent and 85 percent, respectively, whereas shares of Japanese companies wholly vanished.

Fig. 9.17

(Source Authors’ calculation based on data from SIX Group (Trading Participants). For 2022: Share Explorer, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/shares/share-explorer.html [Accessed on July 12, 2022])

Number of listed foreign shares on the Swiss Stock Exchange by Country: 1995, 2012, and 2022

International Comparison of Stockmarkets

The largest share of the world’s corporate equity sector is listed on the US markets, namely the New York Stock Exchange (today NYSE Euronext US) and NASDAQ,⁴⁶ followed by listings in China (Shanghai and Shenzhen stock exchanges), Japan (Japan Exchange group operating the Tokyo Stock Exchange), United Kingdom (London Stock Exchange ), and India (BSE Mumbai Stock Exchange). The SIX Swiss Exchange was ranked twelfth in total market capitalization at year-end 2021.⁴⁷ Intense competition from other nations has diminished Switzerland’s relative international position. This shift can be explained mainly by the increasing importance of financial marketplaces in emerging markets, such as China and India. For example, Shanghai’s and Shenzhen’s stock exchanges have grown significantly and, in 2021, were both ranked in the top ten based on market capitalization.

The relative importance of Switzerland as an international finance center becomes even more visible when comparing its domestic market capitalization-to-GDP ratio to the same proportion of other countries. Although the United States, China , and Japan have the largest markets for equities, stock market capitalization represents a far higher portion of GDP in Switzerland. A high ratio implies a high relevance of financial markets for a country’s economy. Therefore, it is important to keep financial markets functioning well and minimize distortions, as potential misallocations of financial resources might involve higher economic and social costs. From that perspective, Switzerland’s market capitalization is much larger than the country’s contribution to world GDP . Considering the GDP and the size of the economic area, Switzerland has a comparatively high number of substantial multinational companies, especially in the finance, food, and pharmaceutical sectors. In 2021, Nestlé, for example, generated 98.7 percent of sales outside of Switzerland, ABB 64 percent of sales outside of Europe, and Swiss Re earned 68 percent of net premiums even from world areas other than EMEA.⁴⁸ This partially explains the high stock market capitalization in absolute terms as well as proportionally to GDP . Measured by market value, Swiss firms were ranked highly among Europe’s and the world’s largest companies.

Impact of the US Subprime Crisis and the Covid-19 Crisis

As the major financial markets’ values around the world tumbled between 2007 and 2009, so did the Swiss equity market. Between June 1, 2007, and March 9, 2009, the SMI dropped from 9,531 to 4,308, corresponding to a 54.8 percent decrease. Similarly, the SPI lost 53.2 percent of its value. Since then, both indices have partially recovered, but the sharp contraction confirms how connected Switzerland is to the rest of the world.

The financial crisis also had a significant impact on trading activity. Figure 9.16 shows that turnover dropped significantly after the first quarter of 2008 and reached its preliminarily lowest point in the third quarter of 2009. Turnover recovered somewhat during the next two quarters but dropped again in 2012 because of the Euro crisis . Trading activity (as measured by the numbers of trades per trading day) also dropped in the second quarter of 2008 and reached its lowest point in the fourth quarter of 2009. Trading activity only picked up gradually and reached another peak in 2020. At the same time, ETFs and investment funds accounted for many trades.

In contrast to the long-lasting effects of the financial crisis of 2008, the immediate impact of the COVID-19 pandemic on the Swiss stock market in spring 2020 was only temporary. Between March 4 and March 23, 2020, the SMI fell by 20.4 percent but picked up again quickly after that, growing by 18 percent by the end of April 2020. By mid-June 2020, the SMI was back to its level of early March. Apparently, the SMI has anticipated the economic recovery after the COVID-19 bridging loan program was launched and implemented from March 26, 2020 on.⁴⁹ Swiss GDP fell by 2.5% in the first quarter and by 8.2% in the second quarter of 2020, before growing 7.6 percent in the third quarter.⁵⁰

Conclusion

Switzerland’s stock market is still young relative to other developed countries. During the second half of the twentieth century, particularly during the past 30 years, Switzerland’s financial sector has transformed itself into one of the world’s most efficient and integrated capital markets . The major drivers have been deregulation , automation , consolidation, and derivatives ’ emergence and rapid growth.

In contrast to other markets, such as those in the United States, Swiss capital markets have long been relatively free from federal government restrictions. In fact, they are still self-policing where possible, and this effective lack of regulatory bulk has enabled the country to adapt quickly to changing market forces and offer some of the lowest transaction costs in the world. Nevertheless, Switzerland has experienced a significant increase in market regulation over the past 15 years.

Swiss investors are free to buy shares globally and, with minor limitations, foreigners have the same rights in the Swiss capital markets as Swiss residents . These markets are generally regarded as being among the most open in the world, and purchasing shares on the Swiss exchange is easy and cost-effective. Furthermore, raising capital is uninhibited, in contrast to other nations where investor and country protection laws create de facto restrictions on corporate financing.

Switzerland’s equity listings peaked in 1993, and since then, this market has returned more capital to investors than it has raised for expanding companies. In a presumed world of growing international capital and trade flows, with international GDP levels rising at varied but positive (on average) rates, there is the risk that Switzerland’s economy will decline compared to rapidly growing economies. But that does not imply that there will be any less need for Switzerland’s financial services and know-how. Furthermore, it does not mean that Switzerland’s international financial clout will be tied to or restricted by its domestic economic growth.

Switzerland is a financial turntable whose speed and capacity to function in the expanding global marketplace are tied only to the ingenuity and strategic decisions of its financial leaders and the incentives (or disincentives) engineered by its government.

Appendix: Equity Transaction Costs In Switzerland

Brokerage Fees:

• Compensation to the bank for the execution of buy and sell orders (all types of securities ).

• This fee depends on volumes, prices, and exchange type. Since the ban of agreed-upon brokerage fees by the Cartel Commission in 1990, there are no standardized fees. However, a typical charge for an average-sized transaction amounts to 1.2 percent.

Swiss Stamp Tax :

• Turnover in Swiss shares : Total stamp duty of 0.15 percent per transaction (0.075 for each contracting party).

• Turnover in foreign shares : Total stamp duty of 0.30 percent per transaction (0.15 for each contracting party).

Turnover fee (including FINMA tax)*:

• Turnover fee for the SIX Swiss Exchange .

• Apart from the transaction fees, other fees accrue to brokers, such as participation, access , issuing, capacity, and extraordinary fees. Such fees would typically amount to 0.25–1.50 bp.

_*Note This is not a turnover tax but a turnover fee, which includes the FINMA tax. These fees comprise a large portion of SIX’s revenues. Generally, the fees are collected by SIX Swiss Exchange ; the actual composition of the fees is quite complicated.

Source Federal Tax Administration, https://www.estv.admin.ch/estv/de/home/bundesabgaben/stempelabgaben/sta-fachinformationen/umsatzabgabe.html (Accessed on July 16, 2022). SIX, https://www.ser-ag.com/dam/downloads/regulation/trading/directives/loc-tr-en.pdf (Accessed on August 15, 2022).