Tags: gil | shidlo | swiss | franc

Last Chance to Hop Aboard Runaway Swiss Franc

Tuesday, 16 Aug 2011 07:06 AM

In recent months, the dollar and the euro have dropped sharply against the Swiss franc.

I was recently visiting Switzerland with my family and cut the trip short as we calculated that a Starbucks Venti Latte with hazelnut syrup costs a whopping $10.86 (8 Swiss francs).

Stores even with sales were mostly empty with all the local residents feeling as if they had won the lottery with such exchange rates. It now makes sense to drive next door to Germany, Austria, France or Italy and fuel up the car as well as your stomach and fridge or get a new wardrobe in New York.

Investors looking for safe havens from the debt crisis and recession in Europe and the U.S. choose Switzerland (in addition to gold and Japanese yen). Switzerland, which is quite a small country with just under 8 million inhabitants, has the world’s strongest economy.

Being one of the richest countries in the world, it has a large trade surplus, low unemployment and an export oriented industry focusing on high margin markets.

It is one of the world’s lowest corporate taxation regimes and the world’s largest center of offshore private banking.

But is it too late to swap one’s U.S. dollars for Swiss francs?

With an exchange rate of about 75 cents to the U.S. dollar, the Swiss franc is about 40 percent stronger than a year ago (one year ago it was 1.05 Swiss franc to the US dollar).

But it is probably now risky to do a foreign exchange transaction.

The Swiss National Bank (SNB) recently intervened again as CEOs of the country’s major manufacturers — such as Swatch — called for drastic measures. While a recent report stated that the SNB lost more than $13 billion in the first half of 2011 by buying foreign currency (and didn’t have any positive effect on the exchange rate) the current policies are different.

The SNB declared its currency “massively overvalued” and cut its key interest rate target. It also raised the supply of liquidity to the franc’s money markets in a bid to weaken the franc.

The SNB has some aces up its sleeve although investors now think that the SNB cannot do much as it doesn’t have the firepower of the Bank of Japan.

The SNB can coordinate with other central banks to try and limit the inflow of speculative money into Swiss francs.

One possibility is to revert to their policy in the 1970s of charging depositors in Swiss francs a negative interest. One other suggestion being raised is linking the Swiss franc to the euro, which is less likely.

Having said that, should one invest in Swiss companies? Eventually, the Swiss franc will weaken and exporting companies will again benefit from this.

One possibility is to invest in a fund or ETF focusing on Switzerland. The problem with such a solution is that all such funds will by necessity include the major companies in the SMI (Swiss Market Index) that one should avoid – banks or insurance companies.

There are quite a few industrial groups that are headquartered in Switzerland but are really multinational such as Nestle.

One should try and look for companies listed in the U.S. that produce and sell a large part of their output outside Switzerland, being less dependent on currency movements.

For example, engineering company ABB (ticker ABB) has a market capitalization of about $47 billion, 130,000 employees globally and provides power and automation technologies for utility and industrial customers globally.

It has many factories outside Switzerland and most of its clients are overseas, most in Asia.

It has a 2012 price to earnings of about 11 and price to book of 3. What is also important is that it has a huge order book with the latest being a $1 billion project to supply a power link connecting offshore North Sea wind farms to the German mainland grid.

The completed link will be capable of supplying more than 1.5 million households with wind generated electricity.

In the second quarter of 2011, ABB reported a 43 percent increase in net income to $893 million, revenue rose 17 percent and orders increased 18 percent with growth both in mature and emerging markets.

In its recent quarterly report, ABB stated that “the potential shift away from nuclear power and high oil prices are expected to further increase the need for energy efficient power and automation technologies.”

© 2017 Newsmax Finance. All rights reserved.

1Like our page
2Share
GilShidlo
In recent months, the dollar and the euro have dropped sharply against the Swiss franc. I was recently visiting Switzerland with my family and cut the trip short as we calculated that a Starbucks Venti Latte with hazelnut syrup costs a whopping $10.86 (8 Swiss francs)....
gil,shidlo,swiss,franc
733
2011-06-16
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved