Tech stocks in jeopardy as Switzerland moves to stabilize the franc

Once considered a safe-haven currency, the Swiss franc has weakened to multi-year lows against the dollar in 2022.

Today, after announcing its first rate hike since 2007 this week, Swiss National Bank President Thomas Jordan warned that the central bank was ‘ready to take the necessary steps in every situation’ to ensure stability franc prices.

Many observers believe that the language used by Jordan leaves the door open for Switzerland to liquidate some or all of its massive positions in US tech stocks.

“The idea is that they could get rid of US tech stocks, increase the USD, buy Swiss francs to keep the CHF stronger. About 25% of their foreign exchange reserves are currently invested in stocks,” said Amplify head Eddie Domnez.

“This is a significant and hawkish change of position on the part of the Swiss National Bank.”

Tech stocks that could be liquidated

According to data from Bloomberg, the Swiss National Bank’s top equity positions are dominated by US technology stocks.

Here are the top 10 holdings of banks, at the end of the first quarter of 2022.

Company Number of shares held by Switzerland
Apple Inc. 71m
Microsoft Corp. 30.8m
Amazon.com Inc. 39m
Alphabet Inc (Class A) 1.3m
Alphabet Inc (Class C) 1.2m
Telsa Inc. 3.7m
Johnson & Johnson 11m
UnitedHealth Group Inc. 4m
NVIDIA Corp. 11m
Exxon Mobil Corp. 18m

The big Swiss wins

The foreign exchange reserves of the Swiss National Bank currently amount to approximately 1,000 billion US dollars. Switzerland’s purchase of foreign (mainly US) equities dates back to the post-GFC period when the country faced extreme appreciation of the franc.

Hedge Analytics director Meyrick Chapman summarized the situation in a recent FT contribution.

“Swiss investors returning home and foreigners seeking refuge in the Eurozone (GFC) mess have boosted the currency that many saw as the quintessential ‘safe haven’. A typically Swiss version of quantitative easing was born; The newly created Swiss francs were sold to those who claimed them and the proceeds were used to purchase foreign assets.

“The Swiss National Bank’s first choice was to buy European bonds. But as the demand for Swiss francs went wild, the Swiss National Bank had to look further, buying bonds and stocks in the United States and elsewhere. Foreign demand for Swiss currency was thus converted into assets of the Swiss National Bank.

So, given that Switzerland’s stock purchases date back to the post-GFC crash era, rest assured that the central bank’s foreign equity portfolio is still sitting on big profits. Chapman estimates profits are currently around US$65 billion.

Time will tell if these gains will be an incentive to sell or hold as the bank turns hawkish.

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