SWITZERLAND: An Introduction to Capital Markets

After two buoyant years, markets were faced with a number of challenges throughout 2022. Developments unfavourably affecting capital markets included the war in Ukraine, rising inflation, energy supply shortage (particularly in Europe), worldwide supply chain disruptions and continuing measures to restrain the spread of COVID-19. Central banks of all large economies increased interest rates in order to fight inflation, which in Switzerland resulted in positive interest rates for the first time since 2015. IPO activity on a global scale dipped by 45% to 1,333 IPOs in 2022. In Europe, the number of IPOs fell by 70% to 149. The number of IPOs in the USA dipped to 90, hitting a 13-year low in terms of the number of deals.

Against this lacklustre background worldwide, Switzerland as a listing venue was able to attract new corporates and investors. There were 14 new companies listed on the SIX Swiss Exchange, raising aggregate proceeds of CHF3.2 billion. The domestic companies that completed the listing of their shares on the SIX Swiss Exchange are as follows:

  - Acceleron Industries AG, with a market capitalisation of CHF1.7 billion (spin-off of ABB);

  - EPIC Suisse AG, with a market capitalisation of CHF681 million;

  - Talenthouse AG, with a market capitalisation of CHF598.7 million (reverse merger);

  - Kinarus Therapeutics Holding AG, with a market capitalisation of CHF50.3 million (reverse merger); and

  - Xlife Sciences AG, with a market capitalisation of CHF270.4 million (direct listing).

The Chinese-based companies newly listed on the SIX Swiss Exchange through GDRs as part of China–Switzerland Stock Connect are as follows:

  - Gem Co Ltd, with USD381 million raised;

  - Ningbo Shanshan Co Ltd, with USD318 million raised;

  - Gotion High-tech Co Ltd, with USD685 million raised;

  - Keda Industrial Group Co Ltd, with USD173 million raised;

  - Lepu Medical Technology, with USD224 million raised;

  - Joincare Pharmaceutical Group Industry Co Ltd, with USD92 million raised;

  - Sunwoda Electronic Co Ltd, with USD440 million raised;

  - Hangzhou Greatstar Industrial Co Ltd, with USD155 million raised; and

  - Jiangsu Eastern Shenghong Co Ltd, with USD718.3 million raised.

Significant Developments in Switzerland in 2022

China–Switzerland Stock Connect  

In July 2022, SIX launched the new China–Switzerland Stock Connect. The China–Switzerland Stock Connect programme allows Chinese companies to access the Swiss capital market and, in turn, Swiss companies can gain access to the Chinese capital market. This cross-border IPO and/or secondary listing programme operates through the issuing and listing of GDRs. GDRs are tradable financial instruments issued by a depositary bank. They represent shares in foreign equity securities that are segregated and deposited in the home country (ie, either Switzerland or China). The China–Switzerland Stock Connect enabled Switzerland to become a top destination for cross-border IPOs. In 2022, a total of nine companies have successfully IPOed at SIX Swiss Exchange through the issuance of GDRs.

Raise of interest rates  

In September 2022, after 92 months of negative interest rates, the Swiss National Bank announced a return to positive interest rates as a measure against rising inflation. As a consequence, equity was no longer unchallenged as an asset class and other instruments (eg, bonds) became increasingly popular.

Sparks SME Stock Exchange 

Xlife Sciences became the first Sparks SME segment listing in February 2022, with a market capitalisation of CHF254.0 million at the time of listing. Also, SIX launched the second edition of the Sparks IPO Academy and welcomed 14 companies to their programme. SMEs, financial and legal advisers, financial media and other capital market participants have all shown a strong interest in this new segment. This first listing in the Sparks SME Stock Exchange showcased the potential for future listings in this segment for SMEs and investors alike.

ESG reporting  

The new Swiss Corporate Law reform that entered into force on 1 January 2023 introduced new ESG reporting requirements. With the adoption of the Ordinance on Climate Disclosures by the Swiss Federal Council from 2024, new regulations regarding the reporting on non-financial matters will apply to companies and require them to report on climate issues. ESG criteria are also beginning to be included in investment advice. We expect that ESG matters will become an increasingly significant investment criterion for companies and investors alike.

Outlook and Trends for 2023 

2022 was one of the most challenging years for investors and companies since the global financial crisis in 2008. It is hoped that 2023 will prove a turning point towards a better future for capital markets. Looking ahead, the following trends may be crucial for the Swiss capital markets in 2023.

Lasting vulnerability  

The main challenges faced in 2022 – in particular, energy and other supply chain insecurities, the war in Ukraine, and high rates of inflation – remain in 2023. Based on the effects of the initial interventions and solid US employment data, there is still hope that monetary policy will manage to avoid a recession that would impact capital markets as a whole. A tamed inflation would mean that investors could regain confidence, thereby creating a favourable environment for capital market transactions.

Quality in uncertain times  

The development of the capital markets in 2023 will most likely be determined by geopolitical events. With the war in Ukraine continuing to be an unpredictable factor, investors will be looking for quality, stability and growth. It is likely that companies with strong financials and valuations will remain predominant players in the market. It will be interesting to see how new companies manage to make their way onto the stock market and gain the confidence of investors.

Special purpose acquisition companies  

In 2022, only 85 special purpose acquisition companies (SPACs) were able to complete their IPOs in the USA – a 86% decrease from 2021. It will be interesting to see how SPAC IPOs will evolve in the coming year. One of the biggest challenges will be time-related, as all SPACs listed in late 2020 will reach the end of their two-year window. Such SPACs must now either find a target to merge with or return the funds to investors. Pressure to find a target to merge with might result in suboptimally timed mergers. It is, however, possible that SPACs will seize the momentum and be present for investors if capital market transactions pick up in 2023.