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(Bloomberg) -- Swiss stocks have regained more than half their January losses. Traders are betting that’s only the beginning.

The Swiss Market Index has rebounded 9.5 percent from a one-year low as calm has returned to the equity market. A gauge of volatility has dropped 42 percent from last month’s high, when a decision by the nation’s central bank to drop its currency cap sent the franc soaring. Traders are paying the most in a year for options betting on gains in the SMI, relative to bearish contracts.

Investors including BlackRock Inc. and Bank J. Safra Sarasin are riding the rebound on optimism companies will be able to navigate a stronger franc. Swatch Group AG increased prices, Julius Baer Group Ltd. cut costs and Credit Suisse Group AG said it had positive trading results after the Swiss National Bank abandoned the franc limit. The currency trimmed gains as the SNB said it’s willing to intervene.

“The reaction at the time was too extreme -- these are good companies with solid fundamentals,” Francois Savary, chief investment officer at Reyl & Cie., said in London. “People underestimated the extent to which the large Swiss companies had hedged their currency risk. It provided a good entry point for buyers.”

Franc Concern

The SNB’s announcement on Jan. 15 sent the franc up as much as 41 percent against the euro. Concern that a stronger currency would trim exporters’ profits pushed the SMI to a record 14 percent plunge in two days. It had reached its highest level since 2007 on Jan. 13.

This month, all but four of the SMI-listed companies have advanced. Swatch, whose chief executive officer described the SNB’s decision as a “tsunami” for the export industry, raised prices for some of its watch brands by as much as 10 percent. Julius Baer said it will eliminate 200 jobs and cut costs by 100 million francs ($107 million). Shares of the two companies have surged more than 16 percent in February.

The VSMI Index, which tracks volatility expectations for the equity gauge, is now below the level it reached before the central bank’s decision. The cost of bullish SMI options versus puts climbed 56 percent since Jan. 15, according one-month data compiled by Bloomberg.

Stocks Drop

Still, some companies expect the gains in the franc to hurt profit this year. Syngenta AG said it may face a $100 million currency headwind excluding the countries that made up the former Soviet Union. UBS Group AG warned the higher franc and negative interest rates will put pressure on profitability. Andrea Williams at Royal London Asset Management said her firm has steered clear of engineering companies including ABB Ltd. and Sulzer AG.

“The big exporters will be negatively affected,” Williams, who helps manage about $126 billion, said from London. “You have to look at it on a stock-by-stock basis.”

An economist survey published Jan. 22 put the odds of a Swiss recession in the next year at 40 percent, compared with a 9 percent chance in a December poll.

For some investors, Swiss companies offered a good bargain after the decline. Frank Haertel, Zurich-based head of asset allocation at J. Safra Sarasin, said his firm boosted holdings of Swiss equities on the day of the SNB announcement, while BlackRock’s Alice Gaskell said she took advantage of the price drop and snapped up stocks including Zurich Insurance Group AG.

“Market reaction felt a bit exaggerated,” Gaskell, who helps oversee about $5.3 billion at BlackRock, said at a conference in Zurich. “Now we see a reversal.”

To contact the reporters on this story: Roxana Zega in Zurich at rzega@bloomberg.net; Sofia Horta e Costa in London at shortaecosta@bloomberg.net To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Namitha Jagadeesh

Bloomberg