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(Bloomberg) -- The Swiss National Bank’s persistent message that it will use currency intervention and negative interest rates to curb the franc’s appeal in times of market stress might just be having the desired effect.
The central bank’s actions are making some fund managers reassess the allure of the currency, especially ahead of next month’s presidential election in France, where anti-euro candidate Marine Le Pen is among the frontrunners. Aberdeen Asset Management Plc, which oversaw the equivalent of $374 billion as of the end of 2016, uses dollar assets and the yen as havens and Zurich-based Vontobel Asset Management AG prefers alternatives such as German bunds instead of the franc.
The Swiss currency’s subdued reaction is telling. It strengthened less than 1 percent versus the euro the day after the U.K. voted to leave the European Union, a move dwarfed by an appreciation of around 4 percent in both the gold price and the yen against the dollar. The franc’s gain on the day Donald Trump won the U.S. presidential election was similarly muted compared with other haven assets.
“If you look at the price action when you have stress and how disappointing the Swiss franc is in terms of safe havens, it tells you that the SNB is trying to tell the world, ‘Do not use my currency as a safe haven because I will fight that,’” said Ludovic Colin, Vontobel’s head of global flexible bonds. The SNB is saying that “you’ve got gold, you’ve got the yen, use those, stop using my currency.”
The SNB has intervened in the markets to limit appreciation in the franc after removing a currency cap against the euro in January 2015. The central bank has reiterated its threat of intervention to keep the franc from appreciating, repeatedly saying that the currency remained “significantly overvalued.” The franc was at 1.0697 per euro on Thursday, leaving it 0.2 percent stronger this year.
“Most of our funds are sterling based, so if we get worried about the world at least we can still hold cash and get paid for it, rather than holding Swiss assets and having to pay them for the privilege of lending them money,” said Luke Hickmore, Edinburgh-based senior investment manager at Aberdeen Asset Management.
The company is merging with Standard Life Plc, which will create Scotland’s biggest money manager.
Hickmore opted for “euro and dollar duration” in the run up to the Brexit vote, while Vontobel’s Colin said none of his strategies held francs before or after the EU referendum. German 10-year bunds yielding around 0.45 percent and 0.50 percent are “excellent” safe havens in the face of any European political risk, Colin said.
While the SNB might allow for a controlled appreciation in the franc, it will “certainly not” let the currency go to extreme levels, Colin said. “I don’t believe they want the Swiss franc to be a headline. They’ve tried to remove themselves from the panic-button list.”
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