While not everyone is in agreement regarding the state of Swiss lending and borrowing, it seems that the recent lull in activity is difficult to deny. Data in support of this can be found on the Swiss Performance Index (SPI), which shows the average percent of stock out on loan in the country.
Simon Colvin, an analyst at Markit Securities Finance, says that the appetite of the short seller is currently lacking, with Switzerland demonstrating worrying trends that can also be seen across Europe and in the US.
Colvin comments: “The Swiss market did see quite significant short covering until a dip that hit its lowest point in January 2014. Since then there has been renewed demand to borrow and more shorting in the market, so it has definitely picked up. To some extent this is as a result of the time of year, but we saw this all-time low in short interest across every market.”
Nobel Biocare Holding only just made it into Markit’s top 10 stocks even though 20 percent of its shares were being shorted at this time in 2013—it currently has less than 5 percent. Despite its share price showing good short-term growth since the pick-up in February 2014, it is still markedly lower than it was only a year earlier.
The story is the same for even the most popular and consistently shorted names on the Swiss exchange. For example, companies such as Meyer Burger Technology and Logitech International have always graced the list as the most shorted companies. Although Meyer Burger currently tops the list, as it has 15 percent of its shares shorted, at the corresponding point in 2012, it had 22 percent.
Colvin says: “This gives you an indication that, even though we have seen shorting increase since the beginning of 2014, the appetite for even the most shorted names is not there. Once you get to 0 percent on a particular name it tells you that there is no appetite there. We do still see some borrowing and loans with these names, but it is very minimal.”
Although some of these percentages swing quickly one direction or the other, such as Dufry, Colvin claims that this is often related to corporate deals, rights issues and so on, rather than the performance of the stocks themselves.
As well as specific names trading less, the country’s overall statistics also make grim reading for Swiss bankers.
According to DataLend, as of 9 July, equities on-loan in Switzerland amounted to $14.02 billion from a possible inventory of $237.38 billion. This puts utilisation at 6.92 percent, which is the second lowest in Europe.
In terms of fixed income products, the current on-loan value is $1.89 billion, while the inventory value stands at $59.45 billion. This results in utilisation of just 2.7 percent—the lowest in Europe.
DataLend director Chris Benedict comments: “Swiss equities, generally speaking, command lower fees to borrow and have lower utilisations compared to other countries in Europe. Swiss fixed income is mostly Swiss sovereign debt and a few corporates.”
“There is not much to speak of in this asset class. Equities appear to trade mostly in the general collateral range, also with relatively low utilisations, but we do see some volatility in a few of the names where the volume weighted average fee (VWAF) can swing up or down from day to day.”
Despite these numbers, some in the Swiss industry are seeing business pick up. Zürcher Kantonalbank’s Roger Reist commented: “As we gained a new client recently, our pool of lendable assets increased by about $1.5 billion. As a consequence we could lend some of these assets to the street. Apart from that, we have seen some good demand for long-term repos and upgrade trades.”
Colvin also admits that, while there is clearly less activity than there was in 2013, there has also been strong momentum in equities, which has allayed the need to self-short.
He says: “It is a very tough market to call. Switzerland is probably one of the more bullish markets and if you look at the composition of the SPI, it shows that it still has one of the strongest markets in Europe. It tallies up that you would not necessarily see much shorting activity in that kind of market as a whole.”
The question that remains is whether anything is likely to happen in the coming months that will fundamentally change people’s views on Swiss equities. Although the data suggests possibly not, it would be wise for anyone to take the broader continental and international trends into account before going into mourning prematurely.