Experts Wary of Swiss Economy Over Central Bank’s Huge Loss, Franc’s Strength

“A 50 billion euro loss for any U.S. bank would not be so significant but for an economy like Switzerland, the loss is huge, and one of its main implications will be less money going out from the federal government to the Swiss cantons, or states, and this in turn will decrease consumption. We therefore expect the Swiss economy to shrink in the next few months because of lower distributions. We also expect that the SNB will have to keep battling inflation – likely to be a major concern in coming months — and will face an environment where there’s a trade off between keeping the Swiss economy competitive in Europe or having to encourage consumption in the domestic economy.”

Matthew Cobon, head of interest rates and currency, Columbia Threadneedle Investments:

“The strength of the franc doesn’t seem to have had a huge negative effect on the Swiss economy and the domestic economy still seems reasonably robust. In the current, low volatility environment, we have started to see some modest outflows from the franc and we don’t expect it to appreciate too much more from here. We are short the Swiss franc and we are getting paid for that, because we don’t see a huge, obvious demand for Swiss francs on the horizon, and we don’t believe that flight to quality is at the forefront at the moment.”

Brian Jacobsen, chief investment strategist, Wells Fargo:

“The Swiss franc is still viewed as a safe haven and it is still experiencing the safe haven bid from international investors given the recent market volatility. That said, I think the Swiss franc will moderate from here on and I don’t see a lot of upside as far as strengthening pressure. But even if the appreciation will be more moderate, and in the longer-term the Swiss economy will bounce back from the currency effect, I don’t see any more buying opportunities in the stock market. When the euro peg was removed in January, U.S. investors were able to take advantage of the huge drop in Swiss stock prices. But since January, the market has bounced back and is up about 10%, so though it’s been a good ride for U.S. investors, I don’t think there’s a lot of value left to squeeze out of Swiss stocks.”