The Swiss Market Index (SMI) index slipped on Friday as concerns about the safety of Swiss companies continued. The index, which is made up of the biggest companies in Switzerland, has dropped by over 7.60% from its highest point in 2022.
Credit Suisse AT1 bonds concerns
The SMI index retreated this week after the Swiss National Bank (SNB) decided to continue with its rate hikes. As I wrote in this article, the central bank decided to hike interest rates by 0.50% as investors and analysts were expecting. The bank also hinted that more rate will likely come as its battle against inflation intensified.
The SMI index tends to react mildly to the actions of the SNB because of the global nature of its constituent companies. Most of them like Logitech, Swiss Re, and Novartis make most of their revenues globally.
The main reason why the Swiss Market Index is falling is because of how the SNB and the financial regulator sold Credit Suisse. For one, they sold the company at a lower valuation than what it closed at on Friday.
Most importantly, they decided to wipe out the company’s bonds worth over $11 billion. Some of the angered bondholders include companies like Pimco and Lazard. Many of these fund managers also hold bonds of other Swiss companies. As such, there are concerns about how safe their holdings are.
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Further, the index is falling because of a new investigation by American regulators on UBS and Credit Suisse. This investigation is on whether these companies helped Russians to avoid sanctions. If they are able to prove them, these companies could be forced to pay millions of dollars.
UBS and Credit Suisse stock prices were the worst performers in the SMI on Friday. UBS stock has dropped by over 20% from its highest level this year. They dropped in line with the performance of other European banks. Other top laggards were companies like ABB, Holcim, Logitech, and Swiss Re among others.
SMI index forecast
SMI chart by TradingView
The daily chart shows that the Swiss Market Index has been in a strong bearish trend in the past few weeks. After attempting to recover this week, the index found resistance at 10,846 CHF. It has moved below the 50-day and 100-day exponential moving averages (EMA). It also moved below the key support level at 10,654 CHF, the lowest level in December last year.
Therefore, the index will likely continue falling as sellers target the next key support level at 10,000 CHF. The stop-loss of this trade is at 10,750 CHF.
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