(28 JUNE 2019)DAILY MARKET BRIEF 2:No faint hope game as EU and Switzerland turn their backs
It seems difficult to say, but it is a fact: Swiss Federal Councilor, Head of Foreign Affairs department, Ignazio Cassis, confirmed on Thursday that the EU has decided not to extend recognition of Swiss stock exchange, expiring on 30 June 2019. Yet unlike people consider, risks of a major decline in Swiss shares is rather limited. Swiss authorities “Plan B” should safeguard Swiss stock market from any abrupt decline in liquidity or downward pressure on prices. Indeed, the countermeasure implemented by Swiss authorities give EU investors the option to invest in Swiss shares directly by re-routing money flows through Swiss exchanges while a ban of Swiss registered multi-market securities in the EU is therefore implemented. EU sanctions have however no impact on multilateral trading facilities or systematic internalizer investment firms according to MiFid II.
Starting from July 2019, Swiss stock market should therefore remain safe and could even benefit from higher volumes short-term, at the benefit of Swiss brokers. However, the situation could worsen in the long-term, as the Swiss market could lose its shine due to persistent frictions with the EU, which would pose major obstacles to EU investors and asset managers in terms of investment horizon, adequacy and underlying risks. In addition, incentives to implement IPOs on the Swiss stock exchange would be reduced. The tough stance shown by the EU is therefore highly related to UK’s Brexit and the fact that it is not willing to send the wrong signal to its British counterparts. Following the headline, Swiss exchanges are facing a drop due to idiosyncratic risk, while the Swissie stays unaffected. June KOF economic barometer points to a drop of 0.2 points, pointing at 93.6 (prior: 93.8) as the goods producing sector and private consumption are declining while foreign demand shows positive signals.
EUR/CHF is trading at 1.11021 (-1.36% year-to-date), approaching 1.11150 short-term.
