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Swiss National Bank acted responsibly on currency peg, Publica says

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The Swiss National Bank’s (SNB) recent and controversial decision to stop pegging the Swiss Franc to the euro was, overall, “a responsible one”, according to Dieter Stohler, director at Publica, the country’s largest public pension fund.

Stohler told IPE that, with the decision – which shocked many in the industry – the SNB had “further strengthened its credibility and independence”.

However, he conceded that the timing of the bank’s decision took him by surprise.

He said the SNB’s decision would not affect Publica’s CHF38bn (€31bn) in assets directly, as the pension fund has hedged all developed-nation currencies in its portfolio.

He said the only impact on the scheme would be indirect, via investments in domestic equities – where, for many, the SNB’s policy will necessitate “painful adjustments over the short and medium term” – but he declined to provide further details.

Meanwhile, Christoph Gort, a partner at Swiss asset manager Siglo, has warned of wider repercussions for Pensionskassen and their bond portfolios.

He said Swiss government bonds were now “unattractive, overvalued and unsuitable in an ALM context if their yields remain negative”.

Over the medium to long term, Siglo said it expected investors to offload Swiss bonds, as the current situation was “neither balanced nor stable”.

Separately, at Baring Asset Management, Robert Smith, investment manager of Barings’ German Growth Trust, saw a potential positive in the SNB’s decision for neighbouring countries, pointing out that investing in markets such as Germany and elsewhere had “become a lot cheaper” for Swiss investors.

“We may start to see increased capital flows as a result,” he said.

Invesco’s chief economist John Greenwood backed Stohler’s views and said, after six months of euro depreciation, the SNB’s policy was a sensible one.

“This is not the sort of policy move that can be telegraphed in advance,” he said.

“It is not a big change for the world, nor a big event for the euro-zone. The ECB will go ahead with its plans [to announce the purchase of sovereign bonds] irrespective of Swiss action.”

However, senior investment consultant at Mercer Switzerland, Dominique Grandchamp, was much less optimistic.

He said the perception of the Swiss franc as a “safe-haven” currency would mean volatility would continue.

Grandchamp disagreed with Stohler and said the move by the SNB damaged its credibility and thus its ability to intervene.

“Unless the exchange rate moves back to the abandoned floor level, the impact could be significant,” he said.

“In this scenario, we expect the export-reliant Swiss economy could decelerate and move towards a deflationary, recessionary environment with higher unemployment rates.

“The impact on [Swiss pension fund portfolios] is very much determined by the strategic allocation to Swiss and global (unhedged) equities.”

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