Originally Published 19th January 2015. <\/p>\n\n\n\n
Last Thursday the Swiss National Bank (SNB) suspended it’s support for a Euro floor against it’s currency of 1.20, the Euro promptly fell 45% against the Franc. i.e. Swiss investors lost 45% in value of their European assets. Eventually the Euro recovered for a loss on the day of 17% to settle near levels of the August 2011 Franc crisis. The Swiss stock market also fell 15% in two days, implying the only safe haven were Swiss Franc denominated bonds and cash accounts. However the SNB also lowed the target deposit rate to negative 0.75% per annum, whilst holders of 10 year Swiss government bonds have to pay 0.13% per annum (pa) for that pleasure.<\/p>\n\n\n\n
Whilst the timing of the decision was a surprise the market reaction \nwas supreme shock, only days before a member of the SNB publicly \nsupported the previous policy. The previous policy was also beneficial \nto growth and price stability in the Swiss economy. After the \nannouncement investors, traders and global companies scrambled to hedge \ntheir exposure, supplemented by any future SNB commitment to foreign \nexchange stability already losing credence. In sympathy with the SNB the\n Swiss economy at only the 20th largest economy in the world, inhibits \nthe risk tolerance for limiting external influence.<\/p>\n\n\n\n
The Swiss Banking industry has a long history in lacking moral \ndiscrimination of deposit ownership. Swiss regulators also condone \nmisrepresentation by financial intermediaries (when referring suspect \nmoney drug traffickers or terrorists to them). All-in Swiss financial \nsystem participants are the most rational in the world. Some may \ntherefore not be surprised in a conflict between Swiss words and deeds.<\/p>\n\n\n\n
Investors with Swiss liabilities, long investment horizons and \ngenerating non-investment income in Swiss Francs: should continue to \nseek growth in the equities of high growth areas and value companies \n(the US stock-market has outperformed the Swiss currency by 5% pa over \nthe last 30 years); maintaining fixed income in the major trading block \ncurrencies with potential for recovery back to fundamental levels before\n increasing allocation to Swiss fixed income. Those with short \ninvestment horizons and not generating non-investment income in Swiss \nFrancs, continue to be inhibited by negative domestic interest rates and\n domestic equities that are presently penalised by an uncompetitive \nexchange rate.<\/p>\n\n\n\n
Steven J Cohen CFA, BSc (Econ) Hons Lond. 19th January 2015.<\/p>\n","protected":false},"excerpt":{"rendered":"
Originally Published 19th January 2015. Last Thursday the Swiss National Bank (SNB) suspended it’s support for a Euro floor against it’s currency of 1.20, the Euro promptly fell 45% against the Franc. i.e. Swiss investors lost 45% in value of their European assets. Eventually the Euro recovered for a loss on the day of 17% … <\/p>\n