Currency market furore wipes $100 billion off Swiss stocks
Reuters
Published Jan 15, 2015 13:17
Currency market furore wipes $100 billion off Swiss stocks
By Atul Prakash
LONDON (Reuters) - Frantic foreign exchange trading after the Swiss National Bank scrapped its euro cap on the franc took $100 billion(65.52 billion pounds) off the value of Switzerland's blue-chips on Thursday, putting them on track for their biggest one-day fall in at least 25 years.
The Swiss SMI index (SSMI) slumped 10 percent, with stocks including Swatch (VX:UHR), luxury-goods firm Richemont (VX:CFR) and cement-maker Holcim (VX:HOLN) down between 11 and 15 percent in what some traders described as "carnage". Swatch Chief Executive Nick Hayek called the SNB's decision "a tsunami" for Switzerland's economy.
Swiss-listed shares in offshore drilling contractor Transocean (VX:RIGN) slumped to an all-time low, while lenders Julius Baer (VX:BAER) and UBS (VX:UBSG) were down 13 percent and 11 percent respectively.
Weaker equities wiped off about 117 billion Swiss francs ($100 billion) from the SMI share index. http://link.reuters.com/sec83w
"It's carnage," Central Markets Investment Management's head of trading, Darren Courtney-Cook, said. "I'm a seller of Europe here."
The SNB's shock decision to discontinue the cap against the euro that it introduced on Sept. 6, 2011 to fight recession and deflation pressures sent the Swiss franc soaring by almost 30 percent, a move that rippled through global markets and was seen hurting Swiss firms' exporting power.
"Equity markets have been shaken out by the Swiss move," IG analyst, David Madden, said. "Markets are still struggling to puzzle out the full implications, but the sudden drop in equity markets as well as in the FX sphere shows that the move caught everyone off guard."
ADVERSE IMPACT
Mark Haefele, chief investment officer of Swiss bank UBS, said the SNB's decision will have a large negative impact on the Swiss economy, adding the direct effect on Swiss goods exporters was estimated to be about 5 billion Swiss francs, equivalent to -0.7 percent of Swiss Gross Domestic Product.
Peter Dixon, equity strategist at Commerzbank, said that at a time when Switzerland's main trading partners were not doing great on the economic front, the last thing it needed was a further impact from a significant rise in the domestic currency.
"That's going to make life very much more difficult for Swiss companies. The export-oriented manufacturers are going to take the biggest hit and cyclical stocks like ABB (VX:ABBN) will be in the firing line," Dixon said.
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ABB shares were down 8.6 percent.
A sharp move in stock prices could also have an impact on mergers and acquisitions activities. However, Holcim (VX:HOLN) said it remained committed to a planned merger with France's Lafarge (PA:LAFP) to create the world's biggest cement maker despite a fall of almost 3 billion francs in the Swiss company's market value.
Swiss drugmaker Roche (VX:ROG) said its wide spread of costs and revenues in different currencies would mitigate the impact of a surge in the Swiss franc.
Written By: Reuters
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