Switzerland as an economic center: A small country with a strong economy

Switzerland: A small country with a strong economy

Switzerland is beautiful, innovative, and successful. This has not always been the case – and is also not a matter of course. Switzerland owes its strong economy to factors including its pioneering spirit, its location, and its political system, among others. Find out more about Switzerland's model for success and the insights for financial investments that can be drawn from this stable foundation.

The history of Switzerland's model for success

Switzerland is highly esteemed in modern times, but this has not always been the case. Until as recently as the 19th century, Switzerland was one of the poorest countries in Europe. It was only with the establishment of the watchmaking industry by French refugees in the 16th and 17th centuries that the foundations were laid for the industries that would follow: the textile industry in German-speaking Switzerland, and subsequently the machinery, chemical, and pharmaceutical industries in the 19th century. Thanks to the neutrality imposed at the Congress of Vienna in 1815, Switzerland was able to develop into a stable economic center. Other success factors in this context also include openness to the world, innovation, federalism, agricultural diversity, and a central location. 

Proven stability also benefits financial investments

Switzerland's stability, capacity for innovation, and traditional competitive advantages are reflected in the local economy. For example, three of Europe's five largest companies by market capitalization originated here. Switzerland also boasts the highest density of Fortune Global 500 companies relative to the size of its national economy.

This economic strength is also apparent in the financial markets:

  • The Swiss franc has been the strongest currency in the world since its introduction in 1850.
  • Historically, the Swiss franc has had the lowest inflation rate of any currency in the world.
  • Swiss government bonds exhibit the best historical performance worldwide.
  • Relative to Swiss economic strength, the Swiss stock market is the largest in the world. It is also broadly diversified.
  • The Swiss Market Index (SMI) features a higher capitalization than the German Stock Index (DAX).
  • The risk-return ratio of Swiss equities (the Sharpe ratio) is the best in the world.

These factors indicate that Swiss financial assets are not built on sand, and can be taken into consideration as the core of a diversified portfolio even in volatile times.

Financial investments: SMI outperforms DAX

Financial investments: SMI outperforms DAX

Sources: Refinitiv Datastream, KPMG, Bloomberg, Fortune, International Monetary Fund (IMF), The Economist
Last data point: 2022

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