Flexible hedging strategies pay off for Swiss SMEs

For small and medium-sized enterprises in Switzerland, 2021 was not an easy year. In particular, managing currency risks repeatedly confronted them with new challenges. Long-term, flexible hedging strategies enabled many companies to get through the volatile period unscathed.

Swiss SMEs defy the difficult conditions

The year 2021 served as a time to recover from the coronavirus shock. However, for companies in Switzerland, it was also a challenging financial year in which they still had to operate under difficult conditions. Yet, many SMEs managed to cope well through this period, take advantage of new opportunities, and grow. "The Swiss economy's great resilience and agility once again became apparent," says Oliver Banz, Head of SMEs for Region Zurich at Credit Suisse, in the current FX study.

FX Survey 2022 – exchange rate forecasts

The study by Credit Suisse provides forecasts on foreign exchange rate development and offers an overview of how Swiss companies hedge their foreign exchange risks. The comprehensive report provides an in-depth look at the hedging strategy of three international companies and uses these strategies to demonstrate why foreign exchange hedging makes sense even in the case of low volatility.

06/07/2023

Hedging against currency risks remains crucial

The outlook remains uncertain in 2022 as well, especially when it comes to foreign exchange risks. "The situation is anything but simple," remarks Oliver Banz. On the one hand, interest rates are extremely low in many currencies. On the other, companies must not underestimate the geopolitical risks or the global supply chain problems by any means. "Things may change very quickly."

Christophe Müller, Head of Swiss Large Corporates, agrees. He states that, in the current situation, it is helpful to have a hedging strategy that is very rigorous but also flexible. "You need to set out a strategy and then stick to it."

SMEs pursuing long-term hedging strategies

Many Swiss SMEs have gained a heightened sensibility for currency hedging over the past few years. Prior to making important decisions, they perform even more detailed analyses than they did before the pandemic, says Nicola Tettamanti, CEO of Tecnopinz SA, in an interview in the current FX study. A fundamental change in strategy was out of the question for the Ticino-based manufacturing company. "It never pays to simply discard long-term strategic plans," says Tettamanti. This is especially the case for family firms. Sandra Rüegsegger, Managing Director of Kölla AG, and Louis Siriwardena, CEO of Lets Travel SA, have also maintained the hedging strategies laid out for their companies in spite of the pandemic.

Three Swiss SMEs, three methods of currency hedging

Tecnopinz SA – The manufacturing company, based in Mezzovico, produces high-precision tool clamping systems and precision mechanical components, mainly for export. The company mainly relies on long-term forward transactions for its currency hedging.

Kölla AG – The euro exchange rate is particularly relevant for this fruit and vegetable dealer. Since prices vary widely and depend on the weather, the company forgoes special hedging solutions and generally buys the currencies it needs in spot transactions.

Lets Travel SA – The Geneva-based tour operator sees its greatest risk in volatile exchange rates – no matter in what direction. With respect to the US dollar, the most important currency for the company, Lets Travel SA relies on a combination of risk reversals and participating forwards. The SME buys other currencies in reserve whenever the rate is more favorable.

Currency hedging with a strong partner

The example of the three Swiss SMEs shows how crucial it is for a company's currency hedging strategy to be the right fit and to optimally meet its needs. That is precisely why direct and personal contact with the FX advisors at Credit Suisse is an important aspect for all three executives. "They know exactly what our foreign currency needs are and so are able to provide us with excellent advice," says Sandra Rüegsegger.

Louis Siriwardena additionally underscores the FX teams' high level of specialized expertise. "The strategic discussions with our advisors help us tremendously," the CEO of Lets Travel SA remarks. "We almost always achieve extremely positive results with our foreign currency transactions."

Swiss SMEs looking to the future with confidence

All three executives sound a positive note when looking ahead over the next few years. Despite the uncertainties regarding how the pandemic with play out and the unresolved supply chain issues, they expect the economy to continue recovering. In the FX study, Nicola Tettamanti explains, "Optimism in our industry is high."

However, certain risks remain, particularly when it comes to foreign currencies. For instance, Louis Siriwardena sees the threat of the US dollar becoming less stable against the Swiss franc again after a long time. In contrast, Nicola Tettamanti views the main risk as being a sharp appreciation of the Swiss franc against the euro.