by Mish

"Switzerland’s central bank now owns more publicly-traded shares in Facebook than Mark Zuckerberg, part of a mushrooming stock portfolio that is likely to grow yet further.

The tech giant’s founder and CEO has other ways to control his company: Zuckerberg holds most of his stake in a different class of stock. Nevertheless this example illustrates how the Swiss National Bank has become a multi-billion-dollar equity investor due to its campaign to hold down the Swiss franc.

It is now the world’s eighth-biggest public investor, data from the Official Monetary and Financial Institutions Forum show. While most analysts think the strategy is sound, this does expose the SNB to stock market risks that the likes of the European Central Bank and U.S. Federal Reserve avoid.

“The SNB is in a bit of a corner, they have acquired a lot of foreign currency as part of their efforts to weaken the franc and they have to invest it somewhere,” said Alessandro Bee, an economist at UBS. “The bond market is drying up and so they are going increasingly for equities.”

The SNB’s balance sheet is now proportionately the biggest of any leading central bank. On top of that, its stock portfolio has risen at roughly twice the rate of the overall balance sheet as it diversifies its holdings.

In the last 12 months the SNB’s equity holdings have surged 41 percent to around 127 billion francs, according to Reuters calculations. Part of this is due to stocks increasing in value despite losses in recent months, as well as new purchases.

The SNB has also diversified across stock markets. The United States is its favoured location, with its holdings on Wall Street jumping to nearly $62 billion at the end of June from $38.6 billion a year earlier, according to a Securities and Exchange Commission filing.

The SNB has increased its stakes in all of its top 10 U.S. holdings this year, while many big institutional investors have been reducing much of theirs. For example the SNB’s stake in Apple increased by 1.07 million shares in the second quarter, while Invesco sold 9.53 million shares and Fidelity sold 9.23 million in the iPhone maker, according to SEC filings.

FRANCS FROM THIN AIR

RECOMMENDED ARTICLES

The SNB does not comment on the details of its strategy, but says it does not pick stocks, investing instead in companies according to their weight in various indices.

“The SNB creates Swiss francs out of thin Alpine air,” said James Grant, publisher of Grant’s Interest Rate Observer, a U.S. financial markets journal."

“Sound Strategy”

  • “It’s a diversification strategy for them and it is harder to find investment opportunities,” said Alexander Koch, head of macroeconomics at Bank Raiffeisen in Zurich. “With the ultra-low interest rates environment currently there is a very high risk that the prices of bonds can fluctuate more than equities.”
  • “It makes sense for the SNB to do this, and I could imagine them to increase the amount of shares they hold in the future even further,” said Koch. “They could even go up to 50 percent of their holdings.”
  • Nannette Hechler-Fayd’herbe, head of investment strategy at Credit Suisse, said that the risks attached to the SNB’s investment portfolio were “absolutely manageable”. Diversifying its holdings was more important than any temporary setbacks in global equities, she added.

Supposedly buying shares of corporations makes perfect sense. And the risks are manageable.

Amazing.

If the central bank really wants to weaken the Franc and cause inflation, I can help. I will even give the bank a money back guarantee.

This is all I ask: Give me $129 billion and I promise to waste $128 billion of it, quickly. If that fails to do the trick, then I request $129 billion per month, until I succeed.

For my humanitarian efforts, all I want is a one time payment of $1 billion in gold at today’s prices. Should my plan not deliver the desired inflation within two years, I would gladly refund my $1 billion fee.

Mike “Mish” Shedlock

When Will the Bank of Japan Own 100% of Japanese ETFs?

The Bank of Japan is on a rampage buying everything in sight, from stocks to bonds. It’s on course to becoming the largest shareholder of 55 companies by the end of the year.

More Currency Wars: Swiss Central Bank Poised to Cut Interest Rate to -1.0%

The Swiss national bank is not happy with appreciation of the Franc. Its solution is likely another rate cut to -1.0%.

Bond Market Paralysis: What Happens When Central Banks Own the Market? Mish’s Sure-Fire Proposal

Here’s the question of the day: What happens when central banks own the market? The answer comes from Asia where Japan’s Government Bond Market Grinds to a Halt and the yield on 10-year Japanese bonds did not move for seven days.

Central Bank Hubris Bubbles to the Surface

Albert Edwards at Society General commented today on Central Bank Hubris, deflation, and the flattening of the US yield curve. Here are some email snips.

New Nothingness: Central Banks are Powerless “They Should Go Away” Steen Jakobsen

In a “Trading Floor” interview, Saxo Bank CIO and chief economist Steen Jakobsen, discusses the role of central banks in the global economy with Saxo Bank’s Michael McKenna.

Autonomous Bus Testing On Swiss Public Roads

Switzerland is testing self-driving electric buses on public roads in the historical district of Sion, the largest city of the Canton of Valais.

CEO of 2nd Largest French Bank “More Worried Than in 2009”

Francois Perol, CEO of BPCE, France’s second-biggest bank, is more worried now than he was in 2009.

Central Banks Rethink 2% Inflation Target (In the Wrong Direction of Course)

If Central Banks wanted to make a positive impact on the global economy, they would abolish themselves and let the free market set rates.

Italy Aims €20 Billion “Bazooka” at €360 Billion Problem: Bail-ins Coming, Expect More

Bondholder bail-ins are on the way in Italy as private investors pulled the plug on a bank rescue.