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UBP IAS | Swiss & German Small-Mid-Cap Overview: Strengths and Challenges

2020 has so far challenged many worldwide companies  as well as the Swiss and German Small and medium-sized enterprise (“SME”) sector. It is not just COVID 19, but also issues like digitalization, climate change, sustainability and international competition which feature in so many management considerations. When investigating the business strategies of numerous SME companies in Switzerland and Germany, we observe important strengths which should help to weather these obstacles. These companies have taken decisive action to address the COVID crisis  by considering employee safety as well as supply chain or customer management. Several companies outside highly impacted industries (i.e. aerospace, automotive) have shown resilience to mitigate significant contractions in sales and/or earnings. We like the future positioning of those companies with long-term client relationships, outstanding product or service leadership and strong product innovations. Triggered by the COVID crisis, customers have hugely digitized their everyday lives through online shopping, home office, video communication and cashless payments. This is also true for many SME business processes – the pandemic has boosted the interest in digital offers such as web shops, online appointments, etc. more than ever before.

Many small-and-mid-sized companies are growing faster than their large-cap peers with an enhanced share price performance over time – a standout fact for all developed equity markets. Also, in general Swiss and German stocks outperform strongly over time when compared to the performance of large-cap stocks. This outperformance typically occurs along with higher business risks and potentially higher liquidity constraints, which result in greater share price volatility and downside risk. Many SME companies operate  globally and are often market leaders in their niche providing them with a strong competitive advantage. Many SME companies are also long-term providers of mission-critical components in their industry, with established business relationships and certified products that are rarely replaced. SME surveys from June 2020 show positive signs: In Germany, equity ratios have been increasing almost constantly since 2002 up to an average of 31.2% in 2018. This has strengthened SME balance sheets – essential given the current situation (source: KfW Research). In Switzerland, in a recent survey, about 70% of SME companies expect “to get back to full strength” (source: Swisscom Directories AG)..

Author:

  • Angelika Stückler, Senior Investment Manager, UBP IAS

Compliments of UBP Investment Advisors S.A. – a member of the EACCNY.

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