The Swiss Market Index (SMI) is a weighted index for the Swiss Exchange (SWX), the stock exchange for Switzerland, which is based in Zurich. Because of its location in central Europe and also its neutrality in so many conflicts, as well as its well-known banking system, several stock trading operations had been established in Switzerland: in Geneva in 1850, Zurich in 1873, and Basel in 1876. Zurich took over from the other two, and has been one of the major stock exchanges in the world. Indeed, it was the first stock exchange anywhere in the world to introduce a fully automated trading, clearing, and settlement system in 1995. Controlled by 55 banks, each with equal voting rights, the Swiss Exchange is used to raise capital for Swiss companies and also companies operating in nearby countries.
To help with a measure of the “health” of the Swiss Exchange, as well as to allow investors to balance their portfolios, the SMI was established, made up of the 20 most important equity securities, the position being based on the market capitalization of the companies concerned. Essentially, it consists entirely of blue-chip stocks, and was introduced on June 30, 1988, with a baseline value of 1,500 points. It then rises or falls in line with the movement of the stocks that make up the index, as with other stock exchange indices. The level of the SMI is now calculated throughout the day of trading, with changes made every time there is a transaction involving shares that are a part of the index. The new figure for the SMI is then displayed in the trading room, a process made possible by the automated buying and selling on computers. Each year, the companies that make up the share index are examined and adjustments are made. The index is also weighted with the more important companies having far more influence on the SMI than smaller companies.
In August 2008 the major companies represented on the SMI were Nestlé (22.19 percent), Novartis, pharmaceuticals (18.76 percent), and Roche, also pharmaceuticals (15.3 percent). The other companies are UBS (banking) with 7.26 percent; ABB (electronic equipment) with 6.95 percent; Credit Suisse (banking) with 5.73 percent; Zurich Financial (insurance) with 4.63 percent; Richemont (clothing and accessories) with 3.75 percent; Syngenta (chemicals) with 3.26 percent; Swiss Re (reinsurance) with 2.83 percent; and another 10 companies with less than 2 percent each: Adecco (business training), Bâloise (insurance), Clariant (chemicals), Holcim (building materials), Julius Baer Group (investment), Nobel Biocare (medical equipment), Swatch Group (clothing and accessories), Swiss Life (insurance), Swisscom (telecommunications), and Synthes (medical equipment).
To ensure that the shares that make up the SMI are all “blue chip,” there are stringent requirements regarding the liquidity and market capitalization of the companies. There are also analyses of trading volumes that help shape quarterly rankings, with the composition of the index reviewed each year on the third Friday in September. However, there has been a concern by some investors that the SMI does not represent the true value of stock because it does not take into account dividends. This makes the SMI not such a good guide of investment, but only of stock prices. For this reason, the Swiss Exchange has introduced the SMIC, the SMI Cum Dividend, which analyzes prices and takes into account dividends. However, this has not stopped the SMI from being used for many derivative financial instruments such as index funds, futures, and options.
- James Fuerbringer, “When a Name Outweighs a Market,” New York Times (May 10, 1992);
- “SWX Swiss Exchange,” www.swx.com (cited March 2009).
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