Over the long-term, the manager said he believes Swiss equities are a good investment and he has started to look into exploiting the volatility by bottom-fishing stocks. “This is both an opportunity and risk.
“Many companies are global leaders and over the last several decades, Swiss companies have successfully coped with a strengthening Swiss franc,” Frischknecht said.
Volatility to persist
Following the Swiss central bank’s move to remove the celling of the franc against the euro, the Swiss franc gained about 12% against the US dollar. The Swiss stock exchange, as measured by the Swiss Performance Index (SPI), lost 8.6% on the day of the announcement.
Frischknecht expects volatility in the exchange rate and the equity market to persist in the short-term.
Stocks that are on Frischknecht's radar include those that meet three of four conditions: share price losses more than the overall market; an already attractive valuation prior to the share price fall; almost no transactional foreign exchange exposure; pricing power.
The manager will, however, follow a gradual approach to any potential investments, taking cues from important events, such as the European Central Bank meeting on 22 January, which he said could have a significant impact on the financial markets.
For more than three years, the Swiss National Bank (SNB) has had a cap in place to prevent the Swiss franc from appreciating beyond 1.20 francs to the euro. However, with the euro’s depreciation, Swiss authorities have had to increasingly intervene in the currency markets, buying euros in order to keep the exchange rate from breaching this level. This has had a significant effect on the central bank’s balance sheet.
UK, European equities
Rory Bateman, head of UK & European equities at Schroders, said that in the coming days the fund house will make an assessment of the likely impact on the underlying earnings of companies held in the portfolio.
“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.
“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."
Only two funds out of a sample of 12 funds investing in Switzerland equities have managed to register a positive return for the period from 13 January to 15 January, according to FE Analytics.
A look at the one-month performance of Schroder ISF Swiss Equity A, which is registered for sale in Singapore, reflecting a steep decline in net asset value since the Swiss central bank annoucement:
A look at the one-year performance of Schroder ISF Swiss Equity A, which is registered for sale in Singapore: