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30 Apr 2013
Forex Flash: The SNB is one step closer to an SWF - Nomura
FXstreet.com (Barcelona) - Nomura strategist Geoffrey Kendrick notes that the SNB released data today showing the breakdown of its reserve assets for Q1.
He sees that the big movers were from a currency perspective, the share in “other” which increased from 4.2% to 5.7%, the share of fixed income assets in AAA rated assets fell from 78% to 76% and the share in equities jumped from 12% to 15%. Firstly, looking at the currency split of reserves, he sees that this allows him to estimate “active” diversification, and secondly the decline in AAA rated bonds, equates to active selling of CHF 10bn, a number coincidentally equal to his estimate of active EUR selling. And third, the 3% increase in exposure to equities is equivalent to CHF 15bn.
In summary then, he notes that the SNB looks to have sold core EUR assets in Q1 (Bunds?) and used these funds to increase equity exposure in “other” countries and in the Nikkei. He writes, “While we think there is a long way to go yet, these are the types of diversification flows that indicate the SNB is becoming a more active manager of FX reserves (i.e. a Sovereign Wealth Fund). When the SNB release these data for Q2 (in late July) we think the big story will be a large decline in AAA rated fixed income assets, following the 19 April Fitch UK downgrade (the SNB uses an “average of 3” system and Fitch was the second of the three ratings agencies to downgrade the UK). We estimate the SNB held CHF 30bn of GBP assets at the end of Q1, enough to see the AAA rated fixed income share fall to 68% from 76%.”
He sees that the big movers were from a currency perspective, the share in “other” which increased from 4.2% to 5.7%, the share of fixed income assets in AAA rated assets fell from 78% to 76% and the share in equities jumped from 12% to 15%. Firstly, looking at the currency split of reserves, he sees that this allows him to estimate “active” diversification, and secondly the decline in AAA rated bonds, equates to active selling of CHF 10bn, a number coincidentally equal to his estimate of active EUR selling. And third, the 3% increase in exposure to equities is equivalent to CHF 15bn.
In summary then, he notes that the SNB looks to have sold core EUR assets in Q1 (Bunds?) and used these funds to increase equity exposure in “other” countries and in the Nikkei. He writes, “While we think there is a long way to go yet, these are the types of diversification flows that indicate the SNB is becoming a more active manager of FX reserves (i.e. a Sovereign Wealth Fund). When the SNB release these data for Q2 (in late July) we think the big story will be a large decline in AAA rated fixed income assets, following the 19 April Fitch UK downgrade (the SNB uses an “average of 3” system and Fitch was the second of the three ratings agencies to downgrade the UK). We estimate the SNB held CHF 30bn of GBP assets at the end of Q1, enough to see the AAA rated fixed income share fall to 68% from 76%.”