The Swiss franc – a safe haven; Truth or myth?06 May, 2020 by Investors In Property
This week our Managing Director, Simon Malster, put pen to paper regarding one of the most frequently asked questions we receive on Alpine property; is the Swiss franc truly a safe haven?
When I started selling Swiss property in 1986 the exchange rate was almost 3 Swiss francs to the £ but as I write this today (1st May 2020) the rate is just 1.2 CHF / GBP. That means in simple terms that if I had bought a Swiss property for £1 million back in ’86 it would be worth £2.5 million in sterling terms today. That is just on the appreciation of the currency alone and without even taking in to account the capital appreciation of the property.
One of the reasons clients provide when they are explaining why they prefer to buy a ski property in Switzerland is that they are attracted by the security and stability of Switzerland and in particular the Swiss franc (CHF). I meet clients from all over the world and I hear this quite often so I did a little research to examine whether the Swiss franc really is a safe haven.
So today (1st May 2020) I took a look at the performance of the Swiss franc compared to the Pound, the Euro and other currencies.
GBP / CHFCurrently the Swiss franc is worth around £0.83 which is an increase of over 10% in a year compared to the rate of £0.78 on 1st May 2019.
But that doesn’t tell the whole story; the Swiss franc has fluctuated by a whopping 15% against GBP in a very short period.
It appreciated by over 10% against GBP in just 4 months from May to August 2019. It reached £0.85 at height of the Brexit negotiations when fears that the UK would leave the EU without a deal were at their peak.
Over the next months the Swiss franc slowly dropped back to £0.76 in December when the Conservatives won the UK general election with a large working majority.
At that time I didn’t think it would go back up to £0.85 again for some time but I didn’t foresee the Covid-19 pandemic either. As uncertainty gripped the investment markets in March investors bought Swiss francs pushing it up to a peak of £0.88. In just 3 months the Swiss franc appreciated by over 15%
EUR / CHFA year ago 1 Swiss franc bought €0.87 but today it is €0.95 so it has also increased in value by 10%.
As a result I am not surprised when I meet clients in Amsterdam, Antwerp or Brussels that they prefer to buy in Switzerland.
They may already own two properties in the Eurozone, their main residence and a beach house. They say they like to diversify and I understand that.
SEK / CHFWe have a lot of Swedish buyers who choose to buy in Switzerland. The resorts of Verbier and Saas Fee are particularly popular with Swedes.
Again the choice of Swiss francs has been a good investment for them – 1 CHF was worth 9.39 SEK a year ago and at its peak in March it was worth 10.56 SEK, an increase of 10%. Although it has slipped back a little since then it is still trading 7.5% above the level at the start of the year.
USD and othersThe Covid-19 pandemic has highlighted that in times of crisis, investors turn to the traditional safe investments of gold, diamonds, and Swiss francs. The US dollar is also considered as a strong currency but the Swiss franc also appreciated by over 10% against the mighty greenback at its peak in March.
If Germany still had the Deutschmark that would have also gone through the roof, but Germany is helping to prop up the euro and must bear part of the costs of its European neighbours.
So is the Swiss franc a “safe haven”?Yes it certainly is now and the FX trading during the Coronavirus pandemic confirms that. Even though the infection and mortality rates in Switzerland were very high per million population the Swiss franc appreciated day after day against all currencies in early March.
Perhaps it was driven upwards by a sentiment amongst investors that Swiss efficiency would prevail and the Swiss would get to grips with the spread of the virus and its effects. That has been borne out so far by results.
The Swiss have dealt with both the health and the economic effects more effectively than most of Europe and are already starting to ease the coronavirus restrictions.
And how did the Sfr perform in the previous financial crisis?The European debt crisis which started in 2009 caused investors to seek safe haven in the Swiss franc and by the summer of 2011 the Swiss franc was heading for parity with the euro.
The Swiss National Bank decided to peg the Sfr at 1.20 francs per euro and spent huge amounts of reserves buying Eurobonds to maintain this artificial level. As George Soros showed in spectacular style when he bet against the Bank of England in 1992, you can’t buck the market indefinitely.
Eventually the SNB policy became unsustainable and in January 2015 it removed the peg and the Swiss franc appreciated by a massive 30% versus the euro and 25% against the US dollar almost overnight.
What about in the future?Switzerland is a small and well-governed country. It is like an island in the centre of Europe, trading with its EU neighbours but not having to support their debts.
The franc is widely viewed as a financial refuge due to the stability of the Swiss government and financial system and I hope that will continue for many years.
I am sure that my clients who bought ski properties in Switzerland are all pleased with their choice.