The sudden, unexpected move to uncouple the Swiss franc from the euro on Thursday last sent the currency soaring and left Swiss exporters with products that suddenly were much more expensive.
The franc soared from 98 U.S. cents to nearly $1.20 before retreating late Friday to $1.16.
“Any Swiss company is going to have big problems for all sorts of reasons,” said Hugh Johnson, Chairman and chief investment officer at Hugh Johnson Advisors in Albany.
New York state businesses sent nearly $10.3 billion in products to Switzerland in 2013, making it the second largest export market for New York companies, according to the U.S. Census Bureau.
Only Canada was a larger market, with $16.9 billion in exports from New York state.
Switzerland exported $5.1-billion worth of products to New York state in 2013, ranking it seventh among importers to the state.
Stiffer overseas competitionSwiss companies such as Nestle and ABB will face stiffer overseas competition from competitors that price their products in euros or dollars.
ABB competes with General Electric Co. in the sale of power generation products. GE is in the midst of acquiring Paris-based Alstom’s power generation division, which also could see a bigger advantage, now that the euro has dropped sharply against the franc.
Still, the advantages may not be that clear-cut. Gerald R. Shaye, President and chief consultant for Delmar-based Shaye Global LLC, said a company like ABB, if it used a large number of imported components, would find them cheaper to buy with its stronger currency.
ABB shares in Zurich fell 6 per cent on Friday last.
Jewellers, who sell Swiss watches, on the other hand, might find those products more expensive.
But a large Swiss company like Holcim likely isn’t going to export its cement overseas. Instead, it’ll have local plants to minimise shipping.
Holcim is planning a merger with Lafarge, a cement maker based in France.
After the Swiss National Bank ended the $1.20 per euro cap on the franc, Holcim’s shares tumbled as much as 21 per cent before recovering some of the loss, according to Reuters.
The company closed a plant in Catskill in 2011 but maintains a sales office in Hudson.
Lafarge, meanwhile, has a major cement plant in Ravena. Mr. Johnson said the Swiss move would put downward pressure on prices.
“It’s deflationary,” he said. “That’s a real risk in Europe potentially,” where prices already are facing downward pressure.
Deflation can cause spending to grind to a halt as consumers wait for even lower prices.
Foreign reservesOn Friday, Swiss banking officials watched the value of their foreign reserves shrink as the franc gained value.
“'They’ve got $500-billion worth of euros, and they’re taking it on the chin,” Mr. Johnson observed.
One industry that’s also expected to suffer is tourism.
“One of the biggest sectors of their economy is tourism,” Mr. Johnson said. ‘It’s going to make everyone think twice” about going there. — New York Times News Service
