Ever since speculation about when the Federal Reserve will raise interest rates ramped up, global investors have been quick to identify countries that are vulnerable to a more hawkish Fed.
Emerging markets have been victimized by the specter of higher U.S. borrowing costs, but not all international markets and the corresponding exchange traded funds are afraid of the Fed raising rates. In fact, at least one well-known European investment destination is eager to see higher interest rates in the U.S.: Switzerland.
Switzerland, a nation with a reputation for autonomy and often docile financial markets, roiled global markets earlier this year when the Swiss National Bank scrapped the franc’s euro peg.
Despite the currency headwinds against the euro, Switzerland has been able to skirt a recession and the iShares MSCI Switzerland Capped ETF (EWL) has been one of the steadier performers among single-country developed Europe ETFs. [Be Careful With Switzerland ETFs]
However, Switzerland is desperate to see the Fed normalize its interest rate policy. In fact, a UBS economist told the Financial Times that the Swiss National Bank, the Fed’s Swiss counterpart, prays every night that the Fed will hurry up and boost rates.
“Although Swiss shares remain compositely undervalued on a relative basis compared with their benchmark (S&P Europe 350 index), their premium in absolute terms to nearly all their competitors in Western Europe – together with dormant economic prospects amid hastening deflation – discourages Global Markets Intelligence (GMI) from assessing anything more than a market-weight for the SMI,” according to S&P Capital IQ.
The research firm notes that Swiss stocks are currently more expensive than their British, French, German and Italian counterparts.
Even though Switzerland has seen its trade surplus dip from double-digit numbers to a forecasted surplus of 8.3% of GDP as its franc currency appreciates against the euro. That is to say Swiss stocks and EWL would be prime beneficiaries of franc weakness against as many developed currencies as possible. Nearly all of EWL’s largest holdings generate the bulk of their revenue in markets outside of Switzerland.
“Companies such as big pharma’s Novartis and Roche as well as Adecco, the world’s biggest staffing firm by sales, generate more than 95 percent of their sales from abroad, according to Morgan Stanley,” reports Reuters.
iShares MSCI Switzerland Capped ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.