Swiss Balance of Payments Q4/2013 and year 2013
Finally the long-awaited moment for the SNB has arrived. The gap between outflows and inflows in direct investment and portfolio investments is able to counter the heavy Swiss current account surplus. This was the moment we are expecting when we asked “Is the Swiss Capital Account Able to Neutralise the Persistent Current Account Surpluses?” But in the same article we ask if this is sustainable.
But as for bank lending, in Q4 the outflow of funds reversed, Swiss banks received lending/repayment inflows of 12 bln. CHF. It seemed that with the stronger franc they burned their fingers. Lending to foreigners in a foreign currency brings too many risks on their Basel III capital requirements.
Until Q2/2011 foreign investors invested quite strongly in Switzerland; with the euro crisis unfolding in Q3/2011, these flows suddenly stopped. Foreign direct investment in Switzerland have rather fallen since summer 2011.
Total investments – as described in the GDP figures – did not fall; the Swiss have enough funding themselves.
Between 2010 and summer 2012, foreigners bought more Swiss assets than Swiss foreign assets (in most periods the red line is higher than the blue one).
We already explained that the biggest part of these purchases were Swiss stocks, e.g. profitable multinationals and not – as many might think – safe Swiss bonds.
In 2013, domestic investors purchased a net CHF 19 billion in securities issued by foreign borrowers. Investments in equity securities – predominantly collective investment schemes – amounted to CHF 15 billion. Investments in debt securities came to CHF 4 billion on balance, with purchases of bonds amounting to CHF 10 billion and sales of money market instruments totalling CHF 6 billion. Purchases were made particularly in US dollar securities, while euro securities were sold on balance.
In net terms, foreign investors sold CHF 1 billion in securities issued by domestic borrowers. They sold debt securities for CHF 4 billion, while buying equity securities for CHF 3 billion. Equity securities exhibited a reverse trend: On balance, shares were purchased (CHF 9 billion), whereas collective investment schemes were sold (CHF 6 billion). (source BoP Q4 and 2013 press release)
Thanks to deflation and cheaper purchase prices, Swiss companies continue to be profitable, visible purchase of Swiss equities. Due to higher salaries, the profitability has severely fallen for Emerging Markets, but also for companies in Australia and Norway. Smaller investments and rising wages and costs reduced margins. This weak profitability might be a reason why Swiss banks slowed their lending to foreign, in particular to Emerging Markets.
As we anticipated in “Switzerland Enters Boom and.. incredibly.. SNB is Still Printing Money” the Swiss current account surplus weakened; we expect the Swiss current account surplus to shrink further.
The main reasons:
- Strong imports, in particular services:
The official SNB release states: “As regards foreign trade in services, receipts were up by 6%, while expenses increased by 16%.”
The reasons for us are the various regulatory projects (e.g. Too Big To Fail); banks outsource parts of these projects for example to German or Indian workers.
- Due to the slowing in Emerging Markets and slow growth in Europe, exports cannot expand as much as previously.
“Receipts from exports remained at the previous year’s level.”
- With slowing global growth in Q4 and the stronger franc investment incomes fell again after reaching highs in the second and third quarter.
The update for the quarters Q1 – Q3 of 2013 are on page3.
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