A struggling export industry could weigh on Switzerland exchange traded funds as the Swiss franc appreciates against a basket of emerging market currencies.
Year-to-date, the iShares MSCI Switzerland Capped ETF (NYSEArca: EWL) is up 1.3% and the First Trust Switzerland AlphaDEX Fund (NYSEArca: FSZ) is 0.2% higher.
While the franc has been capped at 1.2 per euro over the past three years, the Swiss currency continues to strengthen against other currencies, Bloomberg reports.
“The way the franc is now is not acceptable in the mid-term or long-term,” Nick Hayek, chief executive officer of Swatch Group AG, the Swiss watchmaker that exports 90 percent of its goods.
Specifically, emerging countries like Indonesia and Turkey have witnessed their currencies depreciate, with the rupiah down 14.1% and lira down 12.8% over the past 12-months against the franc.
The stronger franc will weigh on exporters like Swatch, along with other small- and mid-sized companies with factories in Switzerland where workers earn some of the highest wages in Europe.
The pressure on small- and mid-sized exporters could weigh on FSZ.. The First Trust ETF is comprise of stocks that are ranked by a variety of growth and value factors including price appreciation value to price, cash flow to price and return on assets. Due to its weighting methodology, FSZ has a heavy 67.3% position in mid-cap stocks. In comparison, EWL has a 68% position in large-caps, along with a heavy 32.2% weight in health care stocks. [A Soaring Switzerland ETF]
“If it carries on like this, we’re worried,” Rudolf Minsch, chief economist of business lobby Economiesuisse, said in the article. “The strong franc compared with emerging nation currencies, the yen and the dollar, once more burdens the margins of Swiss companies.”
The Swiss franc has traditionally acted as a safe-haven asset, like the Japanese yen, in times of global volatility. However, the franc has not depreciated against the U.S. dollar this time around. The CurrencyShares Swiss Franc Trust (NYSEArca: FXF), which tracks the franc movements against the USD, is down 2.0% year-to-date.
iShares MSCI Switzerland Capped ETF
For more information on Switzerland, visit our Switzerland category.
Max Chen contributed to this article.