What is the SMI index? Table of Contents

What is the SMI Index?

The SMI index is the most important equity index in Switzerland and is made up of the 20 largest and most liquid blue-chip companies in Switzerland and Liechtenstein; this index represents approximately 90% of the total capitalization and total trading volume of the Swiss equity market.

The SMI index was founded on 30 June 1988, with an initial value of 1500 points. The composition of the Swiss market index is reviewed every year. The total market capitalization (as of 29.12.2017) was CHF 1145 billion.

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Composition and calculation of the SMI Index

The SMI is a weighted index for market capitalization corrected for the free float, the components of which are selected based on the minimum capitalization and turnover thresholds measured in each September.

The largest stocks derive from the Performance Index (SPI), the general Swiss stock market index. The index includes all companies listed and traded on the SIX Swiss Exchange.

The SIX was one of the first exchanges to launch electronic trading and to cease floor trading or floor trading in 1996. Together with Deutsche Börse (the German stock exchange company), the SIX contributed to the creation of the Eurex, the third-largest derivatives exchange in the world.

The SMI index is a member of the SMI® family of the SIX Swiss Exchange, which in turn includes SMI®, SMIM®, and SMI Expanded®. The SMI now includes 20 stocks (before the 2007 restructuring, the number of stocks included in the index was 25).

The index value is calculated by dividing the market capitalization of each individual component by a divisor. A divisor is a number that is arbitrarily established to generate a value that can be compared over time. On June 30, 1988, the initial value of the SMI index was set at 1500 points.

In September 2017, the Board members introduced a change to the calculation mechanism to comply with the diversification guidelines of the European Securities and Markets Authority (ESMA), establishing a weighted capitalization, for which no company can have at any time a total weight exceeding 18%.

The 5 main companies of the SMI are:

Nestlé (NESN) Food products
Novartis (NOVN) Pharmaceutical
Roche Holding (ROG) Pharmaceutical
UBS (UBSG) Banking and financial services
Zurich (ZURN) Insurance

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Factors that influence the price of the SMI Index

There are many internal (country-related) and external (sectoral economic changes) factors that affect the performance of the SMI.

Given Switzerland’s strong reliance on exports, the Swiss National Bank’s monetary policy decisions and trade agreements with various trading partners (including the European Union) have a major impact on the index price (such as the referendum 2014 to impose restrictions on the free movement of persons from the EU and the 2015 decision to remove the anchor between EUR and CHF after the 2008 financial crisis).

Switzerland is an important economy in Europe, especially in the healthcare, consumer goods, banking, and insurance sectors. Many Swiss companies operate within the European Union and in other countries, directly or through subsidiaries. Maintaining access to the single market is a fundamental aspect of the national interest and for the Swiss economy.

Given the strong dependence on Swiss products and services around the world, it is not surprising that SMI is highly influenced by international policies and market events.

The health sector constitutes almost 40% of the composition of the index. This is why health policies in the United States, one of the main markets for the pharmaceutical industry, can lead to market shocks in Switzerland.

For example, President Trump’s 2017 speech in which he declared that the United States should negotiate better prices with pharmaceutical companies pushed the entire industry to the brink of a crash.

The performance of global markets has a direct impact on the price of the Swiss Market Index since there is an intrinsic correlation between global indices and the SMI.

Other factors that can affect the Swiss market price include interest rate decisions, elections, trade policy changes, financial crises, events affecting key partners, Swiss national referendums, etc.

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Why choose AvaTrade to trade SMI Index?

The SMI index is one of the most traded instruments in the world and an underlying asset in various financial derivative products, including CFDs.

The main benefits of trading on the SMI include:

  • High liquidity
  • Complete transparency
  • Relatively predictable price dynamics outside of crisis situations
  • Easy access to information regarding the most important events for the index price
  • Wide information offer
  • Potential profits in both bull and bear markets
  • Reduced capital requirements to gain greater exposure to the Swiss market
  • High financial leverage on the SMI index
  • Free training tools
  • Multilingual customer service via email, live chat and over the phone
  • Dedicated account managers
  • Several free platforms for trading, even on the move with AvaTradeGO, the app for iOS and Android

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What is the Best Trading Strategy for SMI 20?

SMI 20 is the Swiss Market Index 20, which is an index weighted with respect to the market capitalization of the 20 largest companies operating on the SIX Swiss Exchange. This set of shares can be considered the largest Swiss blue cap company. The index includes some of the largest and most recognized companies, including food giant Nestlé, global investment bank UBS and pharmaceutical leader Novartis. The index is most influenced by the health sector (almost 40%), followed by the consumer goods and financial sectors (about 24% and 22% respectively).

Since Switzerland is an export-based economy and is located in Europe, the performance of many of the stocks within the SMI depends on the economic performance of the European Union. Additionally, due to the heavyweight of the health sector, health policies in the United States can also have a significant impact on SMI. Finally, while Switzerland is considered a politically neutral country, the SMI will still be affected by global geopolitical events.

A strategy based on the use of two or more combined technical indicators is the best for SMI trading. For example, a combination of the stochastic oscillator or with the RSI (Relative Strength Index) or with the MACD (Moving Average Convergence Divergence) can provide reliable trading signals. It is also possible to use the intersections of the moving average with RSI and the MACD to find profitable trading opportunities. Whichever method is chosen, the trader must be consistent and strictly follow their rules, otherwise, the trading strategy will be doomed to failure.

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