Swiss Franc the 'New Gold', More Action Needed: Analyst
Assistant Editor, CNBC.com
The Swiss Franc has become the "new gold" as investors turn to money markets in an environment governed by fear, Jon Cox, Head of Swiss Research at Kepler Capital Markets told CNBC.
"I think basically the Swiss Franc is the new gold, it's as simple as that. I think where investors basically want to put their money is in...Swiss franc deposits in this type of environment where you can't really trust any other asset," Cox explained.
Cox said the Swiss National Bank (SNB) needed to intervene to curb the currency and remain competitive with the low yielding US dollar and euro.
The bank intervened in 2009, leading to it posting its largest ever annual loss of $21 billion in 2010 and failing to stem the appreciation of its currency .
The SNB has indicated that it would be willing to intervene again, cutting interest rates to zero in August and saying that it would inject liquidity into the financial system to slow the rise of the franc.
Japan has also suffered from the appreciation of the yen , which is also perceived as a safe haven currency, and made a direct intervention in August.
However, the move was seen by analysts as ineffective, and by investors as a buying opportunity. Until external conditions improve, both currencies are likely to see continued upward pressure.
"If you look over the last decade or so, it's been a one way street. The Swiss Franc has appreciated against both the dollar and euro over the last ten years, obviously in the last couple of months it's accelerated and it's a bit of a problem," Cox said.
"If you're an investor and very, very nervous about the euro zone, about the dollar, you're still going to be buying Swiss francs even if there is a negative yield, so I think the Swiss National Bank probably has to be a bit more aggressive, has to actually go into the market and actually start aggressively buying the currency," he added.
Cox said that failure to intervene by the Swiss National Bank (SNB) would mean the currency would steadily appreciate again.
Swiss National Bank 'Hamstrung'
Cox rejected suggestions that the Swiss government should impose a tax on foreign bank deposits, which he believes would be likely to damage the country's fragile banking sector. The SNB was "hamstrung" due to an overheating housing market, he said.
"In the back of their minds, the Swiss National Bank can't do too much because the housing market's overheating… the speculators must know the housing market's overheating, the Swiss National Bank can't go on pumping liquidity into the system. As a result, the Swiss National Bank is slightly hamstrung in what it can actually do," he said.
Cox added that the Swiss government was taking action to ease the pressure on the tourist industry and he believes aid will be extended to small and medium sized firms suffering due to the strength of the currency.
"I think you should be looking at some of the smaller mid-cap engineering companies, for example companies like Aurecon, where basically the government has come out and said it's going to spend 2 billion francs on supporting mainly tourism, but I presume this could spread to other parts of the economy," he said.
Cox added that the bigger Swiss firms were unlikely to receive aid, but smaller precision engineers and watchmakers could be in line for assistance as they try to compete with German firms benefitting from a relatively weak euro.