Swiss Stocks Plunge Most in 25 Years on Shock Central Bank MoveSofia Horta e Costa and Jonathan Morgan
Stocks in Switzerland fell the most in 25 years after the country’s central bank gave up its currency cap -- a shock move that sent the Swiss franc soaring against the euro and triggered wild swings in equity markets.
The Swiss Market Index plunged as much as 14 percent, the biggest decline since 1989, with trading volumes at about seven times the 30-day average. It closed 8.7 percent lower to 8,400.61, the biggest decline among all 24 developed markets today. A gauge of volatility on the SMI soared as much as 137 percent today.
The Swiss National Bank ended its three-year-old cap of 1.20 franc per euro, spurring a record surge in the franc against the euro and the highest gain in more than three years versus the dollar. A strong franc hurts exporters and companies with factories in Switzerland, where shop-floor workers earn some of the highest wages in Europe.
“It’s completely crazy and a shock to everyone,” Francois Savary, chief investment officer of Reyl & Cie., said by phone from Geneva. “Volatility in the currency markets is never very positive, because you add nervousness to a market that is looking for certainties. It makes you unable to forecast profits or economic growth.”
Holcim Ltd., the world’s biggest cement maker, slid as much as 21 percent, leading a decline in exporters. Watchmakers Cie. Financiere Richemont SA and Swatch Group AG tumbled more than 15 percent. Roche Holding AG retreated 8.6 percent.
For owners of Swiss stocks invested in dollars or euros, the rally in the franc made up for losses in local currency. Nestle SA’s 6.2 percent drop in francs turned into a similar gain in dollars.
“No one in Switzerland has hedged their forex exposure,” Ralf Zimmermann, an equity strategist at Bankhaus Lampe KG in Dusseldorf, Germany, said by phone. “All companies trusted the SNB to keep its peg against the euro. Now the rally in the Swiss franc against the euro will lead to a hit in the P&L of Swiss companies.”
Economists predict that the European Central Bank is likely to announce fresh stimulus including the purchase of government bonds at its Jan. 22 meeting. ECB President Mario Draghi’s policies have dragged the euro lower -- a boon to exporters. Today’s SNB decision to drop the currency peg may have been an attempt to preempt increased stimulus from the ECB, said Reyl & Cie’s Savary.
“They clearly expect the ECB to do something next week, and the SNB probably thought that the cost of defending the parity after that would be too huge,” Savary said.
SNB President Thomas Jordan said that lowering the currency cap “wasn’t a panic reaction.”
“It was well considered,” Jordan said at a press conference in Zurich. “It’s better to exit now than in 6 or 12 months when the situation could be even more difficult everywhere.”