Switzerland’s stock market is booming, buoyed by a good economic performance and more competitive exchange rates for the country’s rock-hard currency, the franc.
In the last 12 months, the benchmark (SMI) has gained 8.4%, and is also higher over the last six months.
This morning it traded at 9,555.15, up from 9,256.17 on 19 February. On 19 September, the SMI stood at 8,939.85 and on 19 March last year, it traded at 8,811.33.
A flood of cash
The 20-strong SMI contains not only some of the most famous name in Swiss business and industry but some of the best-known companies around the world. They reflect Switzerland’s traditional strengths in banking and finance (, , , and ) and pharmaceuticals ( , and ).
Food giant is listed, as is , the equipment group, and and Sika, the speciality chemicals companies. No selection of Swiss companies would be complete without representation from the country’s renowned timepiece industry, and sure enough is an SMI member.
But while Swiss businesses have a reputation for solidity and profitability, the country’s economy became caught in the backwash from the financial crisis. The woes of other currencies, in particular the euro, caused an influx of funds into the which rivals as a safe-haven asset.
Indeed, until 2000, the “Swissie” was the last major currency in the world to be partly backed by official gold reserves.
To try to stem the flood of cash coming into Switzerland, the authorities announced in 2011 a cap of 1.2 francs per euro, and printed new francs to exchange for euros in order to hold down the franc’s exchange rate.
But as foreign exchange reserves piled up in vaults of the Swiss National Bank, the authorities could hold the line no more and the cap was lifted in January 2015. The franc rocketed from 1.2 to the euro to just 0.85.
Important challenges ahead
Swiss exporters were battered by the newly-uncompetitive exchange rate, but the franc has since subsided, bringing relief to an economy heavily dependent on international trade. Currently 1.13 to the euro, the franc is well off its earlier highs.
In its most recent Article IV health check, the International Monetary Fund (IMF) said of Switzerland: “The economy has adjusted to the large cumulative exchange-rate appreciation that took place since the global financial crisis…The improved external outlook, together with the [currency] depreciation since mid-2017m are expected to energise the economy.”
The IMF added: “Policies adopted in recent years have aided the recovery and mitigated risks. “
However, the authorities were commended for “skilfully navigating the economy through challenging times”.