Swiss franc soars after cap against euro ends

Switzerland’s companies warned of a plunge in exports, tourist revenues and profits after the country’s central bank scrapped its cap on the Swiss franc, sending the currency soaring up to 30% and crushing their competitiveness in world markets.

Analysts said the country’s renowned watchmakers and luxury goods companies, including Swatch and Richemont, were likely to be the biggest casualties, with the starkest mismatch between revenues abroad and costs at home.

Other Swiss blue-chips, such as food group Nestle, engineer ABB and drugs firms Novartis and Roche, would be better protected by their operations in local markets globally, they said.

But all would be affected to some degree by what the head of brokerage Kepler Cheuvreux described as “a terrible day for corporate Switzerland”.

“We can expect a wave of profit warnings from Swiss companies,” said Pascal Bernachon, strategist at Paris-based private bank KBL Richelieu.

Faced with the prospect of a massive bond-buying scheme by the European Central Bank that might have forced it to intervene repeatedly in foreign exchange markets, the Swiss National Bank abandoned its three-year cap on the franc against the euro yesterday, stunning markets.

Frantic trading slashed about €86bn billion off the value of Switzerland’s blue-chip stocks, their biggest one-day fall on record, in what some traders described as “carnage”.

The benchmark SMI index slumped as much as 13%, with Swatch, Richemont and biotech firm Actelion among the biggest losers, down 14% to 17%.

Swiss exports account for about one-third of GDP, led by chemicals and pharmaceuticals, precision instruments, clocks and watches and jewellery, and machines, appliances and electronics.

The country’s biggest trading partner is the EU, outside of which it has consistently voted to remain. The second-biggest is the US. Tourism is also a major part of the economy, contributing about 3% of GDP and employing 5% of the labour force in the hotel and restaurant industries, mostly in small and mid-sized firms.

The Swiss franc was trading last night at near parity to the euro.

* Reuters