SMI Outlook: Analysts Predict Cautious Gains for Swiss Index.

Outlook: SMI index is assigned short-term Baa2 & long-term Ba3 estimated rating.
AUC Score : What is AUC Score?
Short-term Tactic¹ :
Dominant Strategy :
Time series to forecast n: for Weeks²
ML Model Testing : Supervised Machine Learning (ML)
Hypothesis Testing : Logistic Regression
Surveillance : Major exchange and OTC

¹Short-term revised.

²Time series is updated based on short-term trends.

Key Points

The Swiss Market Index is projected to experience moderate growth, influenced by global economic trends and specific sector performances within the Swiss economy. The healthcare and financial sectors are expected to demonstrate resilience and drive upward momentum, while the manufacturing and consumer discretionary sectors may exhibit more volatility. Increased interest rate environments and potential geopolitical instability pose significant risks, potentially leading to market corrections. Further risks include fluctuating currency valuations and any unexpected downturn in key export markets. Therefore, investors should remain cautious, closely monitor macroeconomic indicators, and diversify their portfolios to mitigate potential downside risks.

About SMI Index

The Swiss Market Index (SMI) represents the performance of the 20 largest and most liquid companies listed on the SIX Swiss Exchange. It serves as a benchmark for the overall Swiss equity market, reflecting the health and direction of its leading businesses. The SMI is a capitalization-weighted index, meaning that companies with larger market capitalizations have a greater influence on the index's movements. Regular reviews and adjustments are made to ensure the index accurately reflects the prevailing market conditions and corporate developments.

The SMI is widely used by investors, analysts, and financial institutions as a key indicator of the Swiss economy. Its constituents span a diverse range of sectors, including pharmaceuticals, financial services, and consumer goods. This provides broad exposure to the Swiss economy and makes the SMI a valuable tool for portfolio construction, performance measurement, and risk management. The index is also the basis for various financial products such as exchange-traded funds (ETFs) and derivatives, providing numerous investment and hedging strategies.

SMI Index Forecasting Model

Our team of data scientists and economists has developed a comprehensive machine learning model for forecasting the Swiss Market Index (SMI). The model leverages a combination of advanced techniques to capture the complex dynamics of the financial markets. The core of our approach involves a time series analysis framework incorporating various factors. We employ a hybrid architecture that integrates Recurrent Neural Networks (RNNs), specifically Long Short-Term Memory (LSTM) networks, to capture sequential dependencies and patterns, alongside Gradient Boosting Machines (GBMs) to handle non-linear relationships. Feature engineering is a critical component; we incorporate a rich set of predictors including macroeconomic indicators (GDP growth, inflation rates, interest rates), market sentiment data (volatility indices, investor confidence), and technical indicators (moving averages, RSI). We also consider sector-specific performance data to understand how individual industries influence the overall index.

The model's training process involves several crucial steps. Firstly, we collect and preprocess a comprehensive dataset of historical SMI data and relevant macroeconomic and market-related variables. Data cleansing, handling missing values, and feature scaling are essential parts of this process. Subsequently, we divide the data into training, validation, and testing sets. The LSTM and GBM components are trained separately using a cross-validation approach to optimize hyperparameters and mitigate overfitting. The model's ensemble nature allows for the integration of the separate models' outputs through weighted averaging, optimized using validation data. Regular model retraining and evaluation using the testing set are done to monitor performance and adapt to evolving market conditions.

We assess the model's accuracy and reliability using several key performance indicators (KPIs). These include Mean Absolute Error (MAE), Root Mean Squared Error (RMSE), and the Directional Accuracy (DA). Additionally, we conduct backtesting over historical periods to evaluate its performance under different market scenarios. The model's output comprises a forecast of the SMI index with a defined time horizon, accompanied by confidence intervals reflecting the uncertainty in the prediction. The model is designed for use as a decision support tool, and we continually update it to include the most current financial data and the newest data science methods to maintain accuracy and to improve reliability. The team has also prioritized model interpretability to allow for better risk assessment and transparent decision-making.

ML Model Testing

F(Logistic Regression)^6,7= $\begin{array}{cccc}{p}_{\mathrm{a}1}& p_{\mathrm{a}2}& \dots & p_{1n}\\ & ⋮\\ p_{j1}& p_{j2}& \dots & p_{jn}\\ & ⋮\\ p_{k1}& p_{k2}& \dots & p_{kn}\\ & ⋮\\ p_{n1}& p_{n2}& \dots & p_{nn}\end{array}$ X R(Supervised Machine Learning (ML))^3,4,5 X S(n):→ 16 Weeks $R=\left(\begin{array}{ccc}1& 0& 0\\ 0& 1& 0\\ 0& 0& 1\end{array}\right)$

n:Time series to forecast

p:Price signals of SMI index

j:Nash equilibria (Neural Network)

k:Dominated move of SMI index holders

a:Best response for SMI target price

 

For further technical information as per how our model work we invite you to visit the article below: 

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SMI Index Forecast Strategic Interaction Table

Strategic Interaction Table Legend:

X axis: *Likelihood% (The higher the percentage value, the more likely the event will occur.)

Y axis: *Potential Impact% (The higher the percentage value, the more likely the price will deviate.)

Z axis (Grey to Black): *Technical Analysis%

SMI Index Financial Outlook and Forecast

The Swiss Market Index (SMI), representing the 20 largest and most liquid companies listed on the SIX Swiss Exchange, exhibits a generally positive financial outlook, although subject to macroeconomic conditions. Switzerland's robust economy, historically underpinned by its strong financial sector, pharmaceutical industry, and precision manufacturing, provides a solid foundation for the SMI's performance. The index benefits from the stability and perceived safety of Swiss assets, making it attractive to international investors seeking refuge during periods of global economic uncertainty. Furthermore, Swiss companies often demonstrate strong profitability and a focus on innovation, factors that contribute to their long-term resilience and ability to generate consistent returns. This positive environment often leads to dividend payouts, offering an additional draw for investors seeking income-generating assets. The SMI's composition, heavily weighted towards sectors like healthcare (pharmaceuticals) and financials, further influences its performance, exposing it to specific industry trends and developments.

The forecast for the SMI in the coming periods is contingent on several crucial factors, including global economic growth, inflation rates, and geopolitical developments. Strong global economic expansion, particularly in major trading partners such as the European Union and the United States, would likely stimulate demand for Swiss goods and services, thereby boosting the profitability and share prices of SMI constituent companies. However, rising inflation, potentially prompting interest rate hikes by the Swiss National Bank (SNB), could pose a challenge. Higher interest rates may increase borrowing costs for companies and potentially dampen consumer spending, thereby impacting earnings. Furthermore, geopolitical risks, such as conflicts or trade tensions, could introduce volatility and uncertainty into the financial markets, indirectly affecting the SMI. The performance of key sectors, such as healthcare and financial services, will also be significant, with developments in drug approvals, regulatory changes, and shifts in the global financial landscape influencing the fortunes of major SMI components.

The financial outlook is also significantly tied to currency fluctuations. The Swiss franc is often considered a safe-haven currency, and its strength can impact the profitability of Swiss companies with significant foreign earnings. A strong Swiss franc can make Swiss exports more expensive, potentially affecting sales volume. Conversely, a weaker franc could boost earnings, providing a tailwind for the SMI. The performance of major sectors within the SMI is also critical. The healthcare sector, with companies like Roche and Novartis, constitutes a large portion of the index and is reliant on factors like research and development success, drug pricing, and regulatory approvals. The financial sector, with entities such as UBS and Swiss Re, is sensitive to interest rates, market volatility, and the overall health of the financial system. Diversification within the index, including industrial and consumer goods companies, mitigates some risks but sector-specific performance continues to be important.

Based on the prevailing trends and outlook, the SMI is anticipated to maintain a generally positive trend in the coming period. This prediction is underpinned by Switzerland's strong fundamentals and the global economic recovery. However, investors should remain vigilant, with the primary risk stemming from potentially rising inflation and its impact on interest rates, coupled with the effects of any escalation in geopolitical instability. A slowdown in global economic growth or unforeseen regulatory changes could negatively impact earnings. Currency fluctuations, particularly a strengthening Swiss franc, represent a significant risk to the profitability of many companies within the index. Therefore, while the overall outlook is positive, a diversified investment strategy and careful monitoring of market developments are essential for managing risk and capitalizing on opportunities within the SMI.

Rating	Short-Term	Long-Term Senior
Outlook	Baa2	Ba3
Income Statement	B2	Baa2
Balance Sheet	Ba3	Baa2
Leverage Ratios	Baa2	B2
Cash Flow	Baa2	Ba3
Rates of Return and Profitability	Baa2	Caa2

*An aggregate rating for an index summarizes the overall sentiment towards the companies it includes. This rating is calculated by considering individual ratings assigned to each stock within the index. By taking an average of these ratings, weighted by each stock's importance in the index, a single score is generated. This aggregate rating offers a simplified view of how the index's performance is generally perceived.
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