Global equities: fundamental shift or temporary setback?

Global Equities: Fundamental Shift or Temporary Setback?

Since January, equity markets have shown signs of weakness and, more importantly, have seen a change in leadership.

The contrast between the global equity market dynamics of 2024 and the first four months of 2025 is striking: performance in USD for major indices such as the S&P 500 and MSCI World is negative or near zero. Moreover, due to the marked weakness of the US dollar this year, returns turn clearly negative when measured in EUR or CHF. This is the first observation. But beneath the surface, the changes are even more profound.

The decline of former leaders

Indeed, the major winners of previous years, most notably the so-called “Magnificent 7,” are now struggling. As of April 30 2025, all of them have posted negative returns in USD year-to-date, placing them deeply in the red when measured in EUR or CHF.

The investment plans announced by the Magnificent 7 for the 2024 – 2029 period are of unprecedented scale.

Why the reversal?

Certainly, uncertainties surrounding Donald Trump’s proposed tariff policies or his intentions to influence Federal Reserve decisions may have had an impact. However, it’s important to note that the weakness in the Magnificent 7 predates these announcements. In fact, by the end of April, much of the market losses linked to the U.S. President’s statements had already been recouped. This challenges the notion that recent market turbulence is solely attributable to political or trade-related tensions.

Early warning signs as of late 2024

While the Magnificent 7 are not a homogeneous group, each with distinct business models, two key observations were already evident by the end of 2024:

Stretched, sometimes very high valuations. Enthusiasm and perhaps exaggerated optimism surrounding Artificial Intelligence contributed to a valuation premium for these leaders, particularly as they collectively displayed enviable levels of profitability and dominant market positions.
Sharply rising capital intensity. Since 2014, the gross value of property, plant and equipment at these firms has often increased more than tenfold. This reflects massive investments in cloud infrastructure and AI.

Massive Capex: a structural shift

On this second point, it is noteworthy that the ratio of Fixed Assets to Revenue has frequently tripled over the past decade, in some cases rising from 35% to 100%. In other words, whereas it took 35 cents of “industrial tooling” to generate 1 dollar of revenue in 2014, it now requires 1 dollar.

This trend shows no signs of slowing. The investment plans announced by the Magnificent 7 for the 2024 – 2029 period are historically large. At the same time, maintenance capex will also weigh on free cash flows.

This is why financial analysis typically does not award high valuation premiums to companies with high capital intensity, extreme examples being sectors such as steelmaking or automobile manufacturing, which are also highly sensitive to economic cycles.

Solid fundamentals, but a logical reassessment

Of course, the business outlook for the Magnificent 7 remains robust and upcoming earnings should remain strong. However, this year’s relatively disappointing market performance is more likely the result of a reassessment of their valuations than a questioning of their fundamentals.

Toward thoughtful diversification

An international equity portfolio can hardly afford to exclude all these companies. However, their relative weight deserves to be reconsidered in light of the evolution of their balance sheets and investment outlook.

There are numerous investment opportunities in global equities beyond the Magnificent 7, whether in Europe or the United States. In today’s context of high valuations and uncertainty around global economic growth, rigorous analysis of business models, margin sustainability, valuations and balance sheet quality is more essential than ever.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of the date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instruments referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the Finma cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Chart of the month: From safe haven to power play: the Swiss market unleashed

From safe haven to power play: the Swiss market unleashed

Switzerland is globally renowned for its breathtaking landscapes, world-class ski resorts, and prestigious watchmaking industry. However, beyond its scenic beauty, Switzerland boasts world-leading companies in niche industries and stands as a safe haven with untapped potential. It offers a compelling opportunity for investors seeking stability and long-term growth, supported by resilient market fundamentals and a strong economic framework.

In recent years, investors have heavily concentrated their portfolios in the U.S. technology sector, particularly in the “Magnificent 7.” However, the recent AI-driven “red wave” has highlighted the risks of overconcentration. The market’s reaction to DeepSeek’s debut served as a stark reminder of how quickly sentiment can shift, underscoring the importance of diversification. In this context, Swiss equities present a compelling opportunity. Known for their strong balance sheets and earnings growth, Swiss companies provide exposure to high-value niche industries. The Swiss market, by nature, has shown a defensive character over time, with key sectors including consumer staples, insurance, utilities, and pharmaceuticals accounting for more than half of its market composition. Post-DeepSeek turbulence, the Swiss market’s defensive qualities shine even brighter.

Since the beginning of the year, Swiss indices have outperformed global peers, with the Swiss Market Index posting impressive gains of 8.59% in January. Demonstrating resilience on January 27th. Adding defensive position remains a time-tested strategy, amid persistent volatility and uncertainty in global markets. Swiss blue chips such as Nestlé, Roche, and Novartis continue to serve as cornerstone holdings for stability-focused portfolios. However, the true opportunity may lie beyond these household names. While large-cap Swiss stocks attract the most attention, mid-cap companies represent a largely untapped growth avenue. Mid-caps, often in their expansion phases, offer significant growth potential backed by strong fundamentals. That said, careful valuation assessments are essential to mitigate risks related to liquidity constraints and premium pricing.

Recent market movements have not disrupted the positive trajectory of several Swiss stocks, with double-digit gains in key names such as Cie Financiere Richemont, Logitech, UBS, Roche, and Partners Group. But also, gems like Galderma, Sandoz Straumann, Swissquote, Comet, Sulzer and Belimo.

Switzerland’s monetary policy remains supportive of economic growth. The Swiss National Bank is likely to maintain a dovish stance, with the potential for lower or even negative interest rates. Such a policy environment provides an additional tailwind for Swiss equities, particularly for export-oriented firms.

For investors seeking a blend of diversification, stability, innovation, and growth, Swiss equities offer a compelling solution. In today’s unpredictable market environment, having a solid Swiss allocation may not just be a luxury—it might be a necessity.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.
© NS Partners Group

Chart of the Month: Data Centers and the AI Gold Rush

Data centers are at the heart of the AI revolution — but who are the real winners?
Are you familiar with the name Sam Brannan?

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Sam Brannan is frequently cited as California’s first millionaire, during the famous Gold Rush of the 19^th century. And guess what? He has never dug in the ground or sifted mud in order to find the precious gold nuggets everybody was desperately thriving for.

How did he manage to make a fortune, while staying warm, dry and clean-handed?

Well, he simply was able to sell what gold prospectors needed to try to extract the shiny stuff: picks, shovels and sieves. 300’000 people rushed in California to find gold, most of them in 1849, which gave rise to the moniker “the San Francisco 49ers”. And most of them became Brannan’s clients, eventually.

Fast forward in the 21^st century, we witness a data collection and analysis rush, with the unstoppable emergence of data centers. In this context, we can easily identify the “data collectors”, like Microsoft, Apple, Amazon, Alphabet or Meta, among others

They must relentlessly invest in hardware to digest these gigantic amounts of data aimed at feeding their Artificial Intelligence ambitions. But these data centers generate high levels of heat, and therefore absolutely need cooling to function properly.

This is where a group of companies, the “data centers coolers”, come into action. Companies like Vertiv, Trane Technologies, Johnson Controls International, Lennox or Carrier provide big tech with indispensable cooling solutions.

As shown on the chart of the month, an equal weighted basket of these 5 stocks has vastly outperformed an equal weighted basket composed of Microsoft, Apple, Amazon, Alphabet and Meta in 2024.

And this confirms that, each time a big investment theme arises, the largest beneficiaries can be found well beyond the usual suspects everybody thinks about at first glance. And that’s good news: we know that the Magnificent-7 capex will be massive the next few years. And many companies will benefit from it. Heating, Ventilation and Air Conditioning stocks are just one example; from Building Materials to Energy Producers or Utility service providers, there are plenty of opportunities for good stock picking that should last for a while. It is time to be curious and look for other long-term winners in this AI craze.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS Partners provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data, quotes, research notes or other financial instrument referred to in this document. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request.
© NS Partners Group

October general market comments

“Atomic” – Blondie, 1979

No less than 3 of the largest companies in the world (all part of the famous Mag-7) have announced their will to go “atomic”, nuclear to be precise, to secure their ever-growing electricity needs in the future. Amazon, Alphabet and Microsoft made this bold move in the last few weeks, which marks a massive shift in the way nuclear energy is considered. This used to be the monopoly of Governments, directly or through their state-owned and/or regulated utilities, but the obvious enormous increase in electricity consumption related to data centres is pushing private companies to enter the power generation business. This, added to the space industry also being the subject of private initiatives, constitutes a serious change in domains that were, up to now, Government-led. What’s next is anybody’s guess, but there are chances that the very deep pockets of the Mag-7 and others will drive tectonic shifts in many industries.

The US presidential race has some atomic characteristics as well, but more in the way both candidates behave, while the Q3 earnings season, which has started in October, was more muted than atomic, at least for the big market leaders.

This has to be put in the context of rising long term yields (+50 and + 27 bps for the US and the German 10 year) and elevated valuations. There are no signs of an imminent severe slowdown for the US economy, and Europe’s and China’s difficult economic conditions aren’t new. While credit behaved extremely well despite rising yields (+0.45% for the Itraxx Crossover), equity markets were almost unanimously in the red: the MSCI World lost 2%, the S&P 500 1%, the Stoxx 600 3.4%, the MSCI Emerging Markets 4.4%, and the Chinese CSI300 3.2%. Japan was the sole outlier with a +1.9% return, but the Yen tumbled 6.3% versus the dollar. Oil zigged and zagged and ended the month up 1.6%, leaving again the spotlight to Gold, which added 4.1% and is up 33% year to date.

Past performance is not indicative of future results. The views, strategies and financial instruments described in this document may not be suitable for all investors. Opinions expressed are current opinions as of date(s) appearing in this material only. References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only. NS PARTNERS SA provides no warranty and makes no representation of any kind whatsoever regarding the accuracy and completeness of any data, including financial market data or other financial instruments referred to in this general comment. This document does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorized or to any person to whom it would be unlawful to make such offer or solicitation. Any reference in this document to specific securities and issuers are for illustrative purposes only, and should not be interpreted as recommendations to purchase or sell those securities. References in this document to investment funds that have not been registered with the FINMA cannot be distributed in or from Switzerland except to certain categories of eligible investors. Some of the entities of the NS Partners Group or its clients may hold a position in the financial instruments of any issuer discussed herein, or act as advisor to any such issuer. Additional information is available on request. © NS Partners Group

Global equities: fundamental shift or temporary setback?