Swiss stocks fell sharply and the franc rose in strength as news of Britain’s vote to leave the European Union reverberated around the markets. The key SMI index tumbled 5.3% on opening on Friday morning before regaining some ground by midday.
Swiss banks were particularly badly hit, with Credit Suisse (SIX:CSGN) seeing 11% wiped off its value in early trading, while UBS (NYSE:UBS) and Julius Bär suffered share price falls of nearly 9%.
The euro fell to just above CHF1.06 against the franc but recovered to around CHF1.08. The British pound also lost ground against the safe haven franc in early trading. The Swiss National Bank (SNB) confirmed that it is currently active in the foreign exchange markets in an effort to keep the franc’s value in check.
The strengthening franc places further pressure on Switzerland’s exporters and tourism industry, which was plunged into disarray in January last year when the SNB abandoned its euro-franc exchange rate peg.
On Friday the Federal Statistical Office published figures showing a 3.4% reduction (to CHF15.7 billion) in spending by foreign guests visiting Switzerland on holiday last year.
Swiss Business Community Reacts
The Swiss Business Federation (economiesuisse) reacted with concern to the Brexit news, pointing out that Britain is the fifth largest destination for Swiss exports and fourth for direct Swiss investments. The lobby group also noted that Britain’s departure from the EU will complicate the already fraught relationship between Switzerland and the European bloc.
In the long run, economiesuisse fears the potential of Brexit to plunge one of Switzerland’s most valuable trading partners into recession. “Studies expect a recession in Britain due to declining trade and investment flows. This may last until 2020,” the federation said in a statement.
Swissmem, the umbrella lobby group for machine builders, electrical engineers, precision tool makers and metal workers, said in a tweet that it expected “negative consequences” for its members from the Brexit vote.
The group expressed hopes that the inevitable period of turbulence would be short-lived.
The Swiss Watch Association labelled the EU exit of its seventh largest export destination as “bad news” and called for the central bank to do its utmost to keep the franc in check.
Economic research group BAK Basel painted a depressing picture for Switzerland in light of the Brexit vote. “Brexit will result in a chain reaction that will lead to erosion of the European Union,” it said in a statement. “This inevitably, will lead to many repercussions for Switzerland. Given the close and diverse links [between Switzerland and the EU], we can assume that a weakened Europe will be bad for Switzerland.”
Bright Spots
The only bright spot of the Brexit vote for BAK Basel is the possibility that some of London’s financial strengths will emigrate to Switzerland, although it believes most will go to Frankfurt or other EU financial centres.
The KOF Swiss Economic Institute at Zurich’s Federal Institute of Technology said it would probably revise its economic growth prospects for Switzerland downwards from its current 1% growth forecast for 2016 and 2% for 2017.
However, KOF director Jan Egbert Sturm told the Swiss news agency SDA that he did not expect a deep recession in Switzerland. “I cannot imagine that Brexit will have any dramatic effect on Switzerland,” he said.
Swiss-British Trade
Last year Swiss firms sent around CHF11.7 billion of exports to Britain and received some CHF6.6 billion of imported goods (without jewels or precious metals). That makes Britain the fifth-largest receiver of Swiss goods and the eighth-largest provider of imports to Switzerland.
If precious metals and jewellery are included to the statistics, Britain is the second-largest supplier of goods to Switzerland.
Switzerland’s record of investing in Britain is even more impressive. At CHF78.7 billion (2013), Britain is the third-largest beneficiary of direct foreign investments (buildings and machinery) by Swiss companies. At the end of 2013, Swiss firms employed 193,700 people in Britain – the fourth-largest concentration of Swiss paid jobs abroad.
By the end of 2013, British firms had invested an accumulated CHF21.3 billion in Switzerland, creating 26,800 jobs. HSBC (NYSE:HSBC), Vodafone (LON:VOD), BP (LON:BP) and Unilever (LON:ULVR) have the biggest Swiss presence of all British firms, according to the Swiss State Secretariat for Economic Affairs (Seco).
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