By Thyagaraju Adinarayan and Saikat Chatterjee
LONDON (Reuters) – Four-and-a-half years after the Swiss National Bank dramatically lifted the franc’s cap against the euro, markets are betting the central bank may be forced to resume its accumulation of foreign cash yet again to rein in its supercharged currency.
The SNB is in a bind as the European Central Bank looks set to ease monetary policy yet again – forcing the Swiss to either double down on its already super-easy policy or intervene again ad hoc to limit the franc against the euro.
At last count, total SNB foreign currency reserves were already three quarters of a trillion dollars.
And any further currency intervention by the SNB has huge potential ramifications for global asset markets – from top-rated euro zone sovereign bonds and blue chip U.S. and UK stocks to A-rated European corporate debt.
The SNB’s massive euro purchases in the currency markets to date are recycled and banked in this broad array of stocks, bonds and other assets around the world.
This week, the Swiss franc surged anew against the euro () to its strongest in two years and may strengthen even further after Thursday’s ECB’s monetary policy meeting, when President Mario Draghi is widely expected to set the stage for a September rate cut.
Money markets are pricing in a 54% chance of a matching SNB interest rate cut by September and a near 80% probability by December; interest rates are already at minus 0.75% – the lowest in the developed market world.
Unlike some of its developed market peers, the SNB has been steadily buying equities and corporate debt on an increasing scale while reducing its exposure to government debt since 2009.
And even in the government bond space, it has quietly extended duration, resulting in large capital gains on its bond portfolio as interest rates globally plummeted, data from its annual report showed.
Equity holdings by SNB have soared to around $100 billion with value of U.S. equities it owned more than doubling as it pumped in more money into U.S. equities, which have been in a record bull-run.
Below is a series of charts, including a detailed snapshot on the SNB’s equity holdings, based on Refinitiv data, Swiss National Bank data and SEC filings:
1/ $100 BILLION IN EQUITIES
A fifth of Swiss National Bank’s foreign exchange reserves are in equities, worth $100 billion – that’s 1/7th the size of Switzerland’s GDP.
If it were a hedge fund, it would be one of the biggest in the world. Its top 25 holdings are in U.S. equities with a big footprint in technology companies such as Apple (O:), Facebook (O:), Microsoft (O:) and Amazon (O:).
The value of U.S. equity ownership more than doubled since 2014-end.
(For a graphic on ‘Swiss National Bank equity holdings’ click https://tmsnrt.rs/2M9gDsH)
(For a graphic on ‘Swiss National Bank equity holdings vs. 2014’ click https://tmsnrt.rs/2M89FEo)
2/ EUROPEAN STOCKS
Aside from the United States, the bank’s biggest equity stakes are in UK heavyweights, including Royal Dutch Shell (L:) and British American Tobacco (L:).
The non-U.S. assets are worth about $9 billion, according to Reuters’ calculations based on the most recent Refinitiv data.
(For a graphic on ‘Swiss equity holdings Europe’ click https://tmsnrt.rs/2MbUKZK)
3/ CURRENCY RESERVES
(For a graphic on ‘Swiss national bank data’ click https://tmsnrt.rs/2y8Z5Vw)
4/ CUTTING BOND OWNERSHIP
(For a graphic on ‘Swiss National Bank Govvie Holdings’ click https://tmsnrt.rs/2M9EpoA)