Schroders Quickview: Swiss franc volatility reinforces focus on fundamentals

The Swiss National Bank's decision to abandon its euro currency peg has led to extreme volatility within European equities. Our response is to remain focused on the fundamentals.

16 January 2015

Rory Bateman

Rory Bateman

Head of UK & European Equities

We have seen extreme volatility within European equities as the market grapples with the Swiss National Bank abandoning the currency peg and the lowering of sight deposit rates from -0.25% to -0.75%.  Initially the Swiss currency appreciated more than 30% against the euro and Swiss stocks fell significantly, although in many cases the falls were more than offset by the currency strength.  In other words, the Swiss market was down 5% in Swiss franc terms but up significantly in euro terms.


"Experience tells us to react carefully but with conviction having understood the longer term fundamentals."

In many of our portfolios we were opportunistic in realising the implied gains in some stocks where the moves were anomalous.  However, during periods of extreme volatility our view is to focus on the fundamentals.  The transactional impact on many Swiss-based companies will be significant given their cost base in Swiss francs has significantly increased relative to many of their European and international peers. 

Indeed, since the announcement we have seen Swiss company share prices adjust to the reality that whilst their companies have become more valuable in euro terms, their operational performance will be impacted by the revaluation.  The currency has lost some of the initial gains and appears to be settling just above parity versus the euro.  Over the coming days, throughout our portfolios at Schroders, we will make our own assessment of the likely impact on the underlying earnings of our companies.

Protecting and adding value to our client portfolios is paramount to every decision we take here at Schroders.  We are acutely aware that volatility can create opportunities and our experience tells us to react carefully but with conviction having understood the longer term fundamentals.

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