Swatch: Out of the SLI, into the recovery

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  Christian Ingerl
  Redaktor

It is a quiet but significant shake-up on the Swiss stock market: Swatch has to leave the SLI on December 22. This is the second time in just a few years that the traditional watch manufacturer has vacated its place in an important stock market barometer. The company had already dropped out of the SMI in 2021. According to the SIX operator, the reason for the current withdrawal is a decline in trading volume and reduced market capitalization. Weakening business in China in particular caused the Swatch share to go into reverse within 12 months.

Difficult semester

In operational terms, the manufacturer of Omega and Tissot watches can look back on a challenging half-year. Sales shrank to CHF 3.1 billion, a drop of 11.2% compared to the same period last year. Adjusted for currency effects, the decline amounted to just under 8%; analysts had expected a drop of only 4.2% on average. The bottom line was a profit of CHF 17 million, a drastic decline after CHF 147 million in the previous year and a reflection of the difficult situation.

The Chinese market in particular proved to be a drag: weak consumption in China, Hong Kong and Macau as well as slumps in tourism markets in South East Asia led to a decline in wholesale business of more than 30%. Store closures by partners had an additional negative impact.

Trend reversal in sight

But despite the gloomy first half of the year, there are rays of hope. Swatch is reporting the first positive signs, for example in the online business and in falling inventories at retailers. Group management is therefore expecting a friendly market environment in the second half of 2025. Business was already noticeably better in August, giving investors and management hope of a turnaround. This is also reflected in the share price: the Swatch share has risen by 28% in the past three months.

Tariff dispute: Signs of détente

Geopolitical risks have also played a role recently. The drastic increase in import duties on Swiss goods announced by the USA threatened Swatch’s access to one of its most important markets – the USA accounts for almost a fifth of all Swiss watch exports. Intensive work is currently underway behind the scenes to find a solution. According to insiders, Switzerland could reach an agreement with the US as early as Thursday or Friday to reduce US tariffs on Swiss goods to 15%. “Tariffs of 15% are still very high, but a reduction of 39% would clearly be welcome,” explains Jean-Philippe Kohl, Vice President of the industry association Swissmem, adding: “This would put Swiss companies on an equal footing with competitors from Germany, Austria, Italy and Japan.”

Risk and opportunity

Caution currently prevails among analysts: the majority of ratings are currently hold or even sell. But this could be precisely where the opportunity lies. Because earnings per share are expected to make a huge leap. The market is expecting an increase of 115% for 2026, and another 65% in 2027. This makes the 2027 P/E ratio of 21 sound not at all ambitious. If Swatch succeeds in achieving an operational turnaround and the China business recovers, the current pessimism could form the basis for a subsequent catch-up process.

Investment solutions

Investors who want to bet on a breakout of the Swatch share to a new high for the year can invest in the Long Mini Future MUHC6T from Leonteq on the long side. The product offers a multiplier of 4.0 and thus benefits disproportionately from rising prices of the underlying. The knock-out is located at CHF136.5023 and is therefore 22.7% away from the current price level. The long mini future has even more upside potential S12B2U from UBS. The leverage here is 7.1, but the risk buffer is also significantly lower at 11.5%.

Anyone assuming that the share will take a breather at the current level can buy the Barrier Reverse Convertible SCAIJB from Julius Baer with a term until October 2026. The product offers the prospect of a return of 7.7% p.a. The barrier is at CHF 95.64 – a solid buffer of 45.9%.