Brexit: what consequences for Switzerland?

The markets had been anticipating a “remain” victory and the surprise effect should even amplify the impact on financial markets. The immediate effect should be extreme volatility with market dislocations due to margin call, panic selling and the search for safe haven.

The UK are to enter into a two year procedure with the EU, to negotiate the exit terms. The EU will probably not make it easy in order to discourage other leavers, which promise to keep uncertainty and volatility fairly elevated at least for the next months.

Impact on Switzerland:

In Switzerland the impact is felt immediately on the currency market. The GBPCHF fell 8% to 1.31 and the EURCHF went as low as 1.0620, before coming back to 1.0730. The SNB is probably intervening in the FX market to prevent a sharper strengthening of the franc. This might be the only option the central bank has for the time being. Cutting the interest rate should be inefficient in this instance as Markets will be more concerned about safety than yield, and moreover yields have also extremely low all across the globe.

Swiss exporting Companies might suffer from both, uncompetitive prices from the strong franc, and weaking demand from Europe for swiss goods, as companies in the UK and Germany might put a hold on investment/hiring for the time being.

Swiss Banks will also be negatively impacted from the market volatility as we have seen them particularly vulnerable to the sharp market swings at the start of the year. The Brexit probably also means low interest rate is here to stay for longer, which is negative for fixed income related revenue.

This is a vote that shows discontentment about the EU, the British government, and mainly about the status quo. A trend we can see developing in many other parts of the world, including the US with the popularity of Donald Trump which could be just another risk event coming up.

ANDREAS RUHLMANN
IG Bank S.A., Market Analyst