With Thursday’s shock that the Swiss National Bank decided to abandon its currency cap still sending shockwaves through the markets, Swiss companies that deal in exports are beginning to fear the worst.
Scrap The Cap
Switzerland’s central bank abruptly decided against maintaining its policy to cap the nation’s currency at 1.20 to the euro. Following the announcement that the cap had been removed, the franc soared, leaving the euro and European equities in the dust.
On Friday, the currency began the day 1.4 percent lower, but analysts say its violent swings are likely to continue until the dust has settled.
While some investors saw massive gains from what social media has dubbed #Francogeddon, others were not so lucky.
Big Gains
Several U.K. fund managers picked up massive gains as their portfolios included large stakes in Swiss healthcare companies Novartis AG (ADR) NVS and Roche Holding Ltd. (ADR) RHHBY. Novartis jumped nearly 4 percent on Thursday and Roche gained 2.13 percent.
Nestle SA NSRGY initially lost 4 percent, but the company recovered with 6.44 percent gains by the end of the day.
Big Losses
Companies that rely on exporting Swiss goods will likely feel the most effects from the currency’s volatility, as products made in Switzerland have just become exponentially more expensive for the nation’s trading partners. Watch makers like SWATCH GROUP AG ADR SWGAY, which saw shares lose 17 percent on Thursday, may be among the hardest hit by the central bank’s abrupt decision.
Most Swiss companies have not hedged for forex exposure, as they had no reason to expect the currency cap to be abandoned, and since watchmakers are required to produce the majority of their parts in Switzerland to be labeled as “Swiss-made” they will likely hurt the most from a drop in exports.
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