MICHELE DE MICHELIS (and team)
CHIEF INVESTMENT OFFICER
FRAME ASSET MANAGEMENT
Score prediction: TURKEY 0 – SWITZERLAND 2
The Swiss franc is an interesting asset for investors, thanks to its “safe haven asset” status. The CHF got this reputation at the beginning of 2000, but it got stronger particularly after the Dot.com bubble, the Great Financial Crisis of 2008 and the Debt Crisis in Europe.
The ultra-loose monetary policy implemented by the Federal Reserve fuelled the devaluation of US Dollar (and a revaluation of the CHF) while the European debt crisis forced Switzerland to fix a peg with Euro in order to prevent an excessive revaluation of the CHF.
However, after four years, the Swiss central bank was forced to leave the peg. It caused a revaluation of the CHF against the Euro – also thanks to the implementation of QE by the ECB that was fuelling the Euro weakness. The maximum level of EUR/CHF allowed by the SNB is 1.06, below that level the SNB would intervene in order to avoid an excessive revaluation of the Franc (as happened during March 2020).
After these facts, CHF is more perceived as safe haven asset by the investors. The long term trend revaluation of the Swiss currency is one of the factors but not the only one or the most important. The economic, social and political stability of the country, the huge reserves held by the SNB, the international neutrality of Switzerland and the presence of big and stable companies like Nestlè, Roche or Novartis are the main reasons why an investor is interested in holding CHF in their portfolio to diversify and protect the assets.
BCC RISPARMIO & PREVIDENZA
Score prediction: TURKEY 3 – SWITZERLAND 1
Turkey’s banking sector plays a pivotal role in the economic activity of the country, since most capital market transactions are carried out by banks. The industry is characterised by the coexistence of state banks, which provide financing to specific industries, alongside private banks, which have connections to large industrial groups and display diversified ownership structures.
The depreciation of the lira within the global inflationary pressures raises concerns about the currency mismatch between assets and liabilities onto the balance sheets of Turkey’s largest private banks.
The low-rate environment in the eurozone and the United States allowed banks to save interest costs by issuing euro- and dollar-denominated liabilities while originating lira-denominated assets.
Credit risk on foreign currency bonds is mitigated for Turkish banks where a stake is held by a large European group: this is the case for Garanti Bankasi (consolidated interest of 50% held by BBVA) and Yapi Kredi (stake of 20% held by UniCredit).
The presence of a larger entity allows for greater affordability of swap costs for the implementation of hedging strategies compared to peers – such as Is Bankasi and Akbank – despite similarities in capital and NPL ratios.
Furthermore, Yapi and Garanti bear a currency mismatch ratio (total foreign currency liabilities on local currency assets) of 44% and 39% respectively, versus 46% for Is Bankasi and Akbank. Given similar spread levels on senior dollar bonds for all the four issuers (450-500bp on 4-5y durations), Garanti and Yapi offer better credit quality.