Frantic trading after the Swiss National Bank scrapped its cap on the franc drove Swiss stocks down 10.2 percent on Thursday, putting them on track for their biggest one-day fall in at least 25 years. Some traders described the central bank's move as "carnage", while Swatch Chief Executive Nick Hayek called the franc's surge in value against the euro an economic "tsunami" for Switzerland, which sends more than 40 percent of its exports to the euro zone.
Stocks including Swatch, luxury-goods firm Richemont and cement-maker Holcim were down between 12 and 17 percent as the franc surged against the euro.
Top Swiss stocks lost some 100 billion Swiss francs of their combined market value, a figure which represents roughly $90 billion. The currency moves could however have technically led to gains for unhedged dollar investors.
Swiss-listed shares in offshore drilling contractor Transocean slumped to an all-time low, while lenders Julius Baer and UBS were down more than 11 percent.
Weaker equities wiped off about 117 billion Swiss francs ($100 billion) from the SMI share index.
"It's carnage," said Central Markets Investment Management's head of trading, Darren Courtney-Cook.
The abrupt ending of the cap, introduced on September 6, 2011 to fight recession and deflation pressures, sent the Swiss franc soaring by almost 30 percent, threatening Swiss firms' exporting power.
"Markets are still struggling to puzzle out the full implications, but the sudden drop in equity markets as well as in the FX sphere shows that the move caught everyone off guard," said IG analyst David Madden.
However, other leading stocks indexes in Europe were higher, with some traders saying the SNB must be expecting an unstoppable tide of euros from the European Central Bank through quantitative easing, which is seen as positive for stocks.
"The actual statement from the SNB talks about monetary policy divergence becoming even more pronounced. Reading between the lines, they expect ECB QE to be announced very shortly," Neil Wilkinson, European fund manager at Royal London Asset Management, said.
The pan-European FTSEurofirst 300 index was up 2.1 percent at 1445 GMT, while Britain's FTSE 100 index, Germany's DAX and France's CAC were up 0.8 to 1.8 percent.
Mark Haefele, chief investment officer of Swiss bank UBS, said the SNB's decision will harm the Swiss economy, putting the direct effect on Swiss goods exporters at about 5 billion Swiss francs, equivalent to -0.7 percent of Swiss gross domestic product (GDP).
Peter Dixon, equity strategist at Commerzbank, said a significant rise in the domestic currency was the last thing Switzerland needed at a time when its main trading partners were not doing too well on the economic front.
A sharp move in stock prices could also affect mergers and acquisitions. However, Holcim said it remained committed to a planned merger with France's Lafarge to create the world's biggest cement maker despite a fall of almost 3 billion francs in the Swiss company's market value.
Comments
Comments are closed.