Curious thing about the franc

The Swiss franc represents a currency that is in the focus of investors' interest at almost any time. It wasn't long ago that the Swiss currency grew so strong that it was already threatening the competitiveness of the Swiss economy. The Swiss National Bank even began intervening against the domestic currency in 2015, a regime that it continued to apply until the end of September 2022.

The franc then began to strengthen again, both against the euro and the Czech crown. So far this year, this trend has stopped or even slightly reversed. The Swiss franc has embarked on a trajectory of gradual depreciation that has been unprecedented for years.

This is despite the fact that the Swiss National Bank's main interest rate was raised to 1.75 per cent last June and has been at this level ever since. The reason for the franc's depreciation may thus be the slight decline in interest rates on Swiss government bonds. This has fallen from around 1.5 per cent last March to 0.83 per cent today.

In addition, there are increasing signs that the Swiss National Bank will move to lower its base rate in the near future, as it is satisfied with the way inflation is developing there. This would mean that the Swiss franc will continue to be under selling pressure, which is of course good news for investors looking for interesting opportunities in the Swiss stock market. Moreover, the Swiss franc has performed differently in recent years than has been the norm in the major global equity markets, i.e. its performance has been significantly lower.

All of these factors suggest that a relatively favourable constellation for investment in Swiss assets has emerged.

Investing in index

So how to go about it? There are several options. A safer strategy is to invest in an equity index. This is not a Swiss specific strategy, but a fairly common strategy for individual investors who invest at regular intervals in an ETF that replicates an equity index in the composition of its equity portfolio. So if you are interested in Swiss equities, then choose an ETF that focuses on the main Swiss stock market index. This is the SMI (Swiss Market Index), which includes the 20 most attractive Swiss stock market titles.

The performance of the SMI over the last five years has been almost 22 per cent.*[i] While this may seem very low, especially compared to other major global indices, the appreciation of the Swiss franc against major currencies, or the weakening of major currencies against the Swiss franc, must also be taken into account. This represents an additional return for an investor in Swiss assets. A certain advantage of the SMI index is its relative stability, so investors are exposed to a lower risk of volatility, again compared to other global exchanges.

Swiss blue chips

Another option is to focus on individual stock titles traded on the Swiss stock exchange. Here too, however, it is worth choosing from the so-called blue chips, i.e. the top 20 stocks traded on the Swiss exchange.

These stocks include virtually all well-known and famous Swiss companies such as Nestlé, Novartis, ABB, Holcim and a number of Swiss financial houses - banks and insurance companies.

For example, on this page you will find a detailed overview of the performance of the individual Swiss blue chips. Since the beginning of this year, the Lonza Group (pharmaceutical, biotechnology and nutritional sector) has gained the most, by more than 30 percent.*[ii] The biggest year-on-year increase was recorded by Logitech, up almost 54 percent,*[iii] while the banking house UBS Group leads the way with a 71.19 percent*[iv] increase over the three-year period.

Among the industrial companies, ABB appears to be the most interesting, with its shares showing the third highest three-year performance of +50.19 percent.*[v] Year-to-date, ABB shares are up nearly 30 percent, having added nearly eight percent since the beginning of this year.

In conclusion, investing in Swiss assets is interesting in bad times but also in good times. However, it always depends on what goal you are pursuing with your investment. Above all, whether you want to avoid losing too much value in turbulent times, whether you are focusing on the long term or whether you are looking for short-term, quick appreciation. In any case, exchange rate risk must also be taken into account, which means, among other things, monitoring the monetary policy of the Swiss National Bank, but also the ECB and the CNB.

David Matulay

Analyst

InvestingFox

More about the company on InvestingFox.com

[*] Past performance is no guarantee of future results.

[i]

Source: https://www.investing.com/equities/switzerland

[ii]

Source: https://www.investing.com/equities/switzerland

[iii]  Source: https://www.investing.com/equities/switzerland

[iv]

Source: https://www.investing.com/equities/switzerland

[v]  Source: https://www.investing.com/equities/switzerland