No Need To Panic After Switzerland's U-Turn On Forex Policy - UBS
Tom Burroughes
19 January 2015
International investors shouldn’t panic because of last week’s shock move by the Swiss National Bank to stop capping the country’s currency against the euro at a SFr1.20 exchange rate, – something which could in itself be a potential factor in the SNB's decision to remove the franc's link to the euro. This announcement is likely to further weaken the euro relative to the US dollar.
The Zurich-listed bank said that the eurozone is likely to see stronger economic growth later in 2015 and falling energy prices should also be supportive for the US economy, thereby being positive for risk assets.
As a result of such forces, UBS remains confident of its overweight stance on global equities, particularly as regards the US.
“With respect to Swiss assets specifically: we currently hold an overweight position in Swiss equities and an underweight position in the Swiss franc, and we are reviewing these positions in light of the SNB's decision. That said, the current trading environment is highly technically driven, and has been, at times, illiquid. We await a more fundamentally-driven and stable trading environment in the days ahead before deciding on potential changes,” it said.
“Given the substantial impact of Swiss franc strengthening on the Swiss economy – in particular through the export channel – we are revising down our GDP growth forecasts. Assuming that euro/Swiss franc stays around current levels, we would expect to see a negative growth contribution from net exports in 2015, while consumption should be supported by exceptionally low rates and energy prices,” it said. Although economic growth will be lower, UBS said it did not forecast a recession and expects UK GDP growth of 0.5 per cent in 2015 and 1.1 per cent in 2016.