Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis-Swiss central bank stands by as equities boom drives the franc

EconomySep 20, 2021 08:41AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
2/2 © Reuters. FILE PHOTO: The Swiss National Bank (SNB) logo is pictured on its building in Bern, Switzerland June 17, 2021. REUTERS/Arnd Wiegmann/File Photo 2/2

By John Revill and Elizabeth Howcroft

ZURICH (Reuters) - Stock market flows and overseas investment returns are emerging as major drivers for Switzerland's currency in a shift that may already have triggered changes in how the country's central bank responds to franc strength.

Historically, the Swiss National Bank (SNB) has intervened to prevent excessive franc appreciation, caused either by speculators testing the central bank's resolve or by panicky investors buying francs when markets sour.

But last month as the franc rose to a nine-month high against the euro of 1.0694, there was no significant increase in banks' so-called "sight deposits", a usual sign of SNB activity.

Analysts said the franc's latest spurt reflects foreign investment flows into Swiss stocks rather than speculative bets, alongside a boom in overseas stocks the SNB itself holds.

What the SNB has to say about the franc will be the focus at its monetary policy meeting on Thursday, where it is not expected to change its -0.75% interest rate -- the world's lowest.

At its June monetary policy assessment, the SNB raised its inflation forecasts but kept its ultra loose policy to restrain the franc. The SNB described the franc as "highly valued" and said it remained ready to intervene in forex markets as necessary.

Analysts said a shift in the drivers of franc appreciation towards equity investment, particularly into Swiss heavyweights such as Nestle and Roche, has boosted inflows. The analysts noted high demand for such defensive shares during times of uncertainty.

Switzerland's stock exchange does not release flows data but Swiss balance of payments numbers for the first quarter of 2021 point to portfolio investment inflows of $12.2 billion, just shy of a record $13 billion seen in early-2015, Refinitiv data shows.

Karsten Junius, an economist at J.Safra Sarasin, noted that in the six months to end-August, Swiss blue chips outperformed global equities by 6 percentage points.

Junius said Swiss multinationals had benefited from the business cycle shift as the world economy cooled from its early-2021 rebound and investors moved into defensive shares.

"The SNB is probably asking, do we want to fight this? Can they do anything against the moderating of the global business cycle?" Junius said.

"Speculative flows into the franc is something you can fight, but this is a fundamental change in the economic cycle," he added. "The SNB is having to accept this development, and has decided to stay on the sidelines."

The SNB declined to comment.

Evidence of SNB intervention shows up in so-called "sight deposits" - money that commercial banks park overnight with the SNB. These tend to increase when the central bank steps up its currency market purchases to dampen the franc.

But sight deposits have declined recently.

For example, total sight deposits were slightly down in the latest week ending Sept. 17 at 714.65 billion Swiss francs ($767.70 billion)) compared with a week earlier.

Banks' sight deposits rose by 3.75 billion francs in August, versus an increase of 10.99 billion francs in August last year, based on Refinitiv data.

Graphic: SNB sight deposits:

Graphic: Equity:


Another powerful driver of franc strength may come from the SNB's own holdings.

The SNB invests a significant amount of its foreign reserves in overseas equities and credit.

These holdings generated 43.5 billion francs in profits in the first half of 2021, versus almost 50 billion in 2019 and 21 billion last year, based on SNB data.

The SNB's top holdings include Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL), filings to the U.S. Securities and Exchange Commission showed. The combined market cap of these tech companies has grown by 34% over the past year, based on Refinitiv data.

Graphic: A growing share:

Hedge fund Eurizon SLJ Capital said that as booming stocks and hefty dividends boost the value of the SNB balance sheet, it becomes harder for the franc to weaken.

The franc therefore is no longer a pure "fiat" currency that derives its value from the central bank's credibility, but one backed by actual dividend-yielding foreign assets, Stephen Jen and Joana Freire, analysts at Eurizon SLJ, wrote.

"Risks to the franc may be skewed to the strong side, i.e., it will strengthen again in risk-off but may not weaken that much in risk-on," they said.


The Swiss economy, forecast to grow at an above-trend 3.2% this year and 3.4% in 2022, seems to be coping for now with the robust franc.

Junius believes the SNB would be happy with euro/franc at 1.070 or above, levels that will not threaten exports.

On an inflation-adjusted basis, the franc is 5% percent overvalued versus 30-year averages. In January 2015, before the SNB scrapped the "floor" it had set against the euro, it was 13% overvalued, according to J.Safra Sarasin estimates.

Gero Jung, an economist at Bank Mirabaud in Geneva, said the SNB would probably prefer a weaker franc yet has kept interventions at low levels.

"I don't think it's a concerted effort to significantly weaken the franc," he said.

($1 = 0.9309 Swiss francs)

Analysis-Swiss central bank stands by as equities boom drives the franc

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email