SNB’s latest BoP shows big swings in cross‑border flows — what it means for the franc and markets

Quick snapshot: the SNB’s headline moves and what they mean

The Swiss National Bank (SNB) published its latest balance of payments and international investment position (IIP) update, showing a noticeable shift in cross‑border flows. The current account remained in surplus, driven by goods and services receipts, while the IIP moved further in Switzerland’s favour after strong valuation gains. At the same time, the financial account recorded volatile portfolio and other investment flows, reflecting big swings in offshore bank funding and international asset prices.

Put simply: Switzerland earned more from trade and investment income than it paid out, while the country’s foreign asset position benefited from positive market revaluations. Those twin moves help explain why the franc has shown resilience and why the SNB’s balance sheet still looks tilted toward large foreign exposures.

Line-by-line: current account, financial flows and valuation effects driving the IIP

Current account — goods and services: Exports of goods remain a sturdy source of surplus. Swiss exporters continue to win sales in high‑value sectors, keeping the goods balance positive. Services — especially financial and business services — added to receipts, though invoicing patterns can be lumpy from quarter to quarter.

Primary income: Investment income was a key swing factor. Returns on Swiss holdings of foreign equities and bonds, plus cross‑border banking interest flows, boosted inflows. That outsize contribution from investment income is common for Switzerland because of its large foreign assets and global banking ties.

Secondary income and capital account: Transfers and one‑off items were small and did not materially change the headline balance. The capital account stayed marginal, as it typically does for advanced economies.

Financial account — FDI, portfolio and other investment: Foreign direct investment was steady, reflecting long‑term corporate positions. Portfolio flows were more volatile: foreign investors changed allocations to Swiss securities while Swiss residents adjusted offshore holdings. Other investment — mainly bank loans and deposits — showed sharp movements tied to cross‑border funding needs at large banks.

Reserve assets and valuation effects: Reserve asset changes were modest, but valuation effects across all asset classes were important. Global market gains tended to lift the value of Swiss claims on the world, improving the IIP. Exchange‑rate moves also revalued foreign currency assets and liabilities, a familiar channel that amplifies swings in the headline net position.

Net international investment position: Taken together, the combination of a current account surplus and positive valuation changes pushed the IIP further into net creditor territory. That means Switzerland’s external balance sheet looks healthier on paper this quarter, even after accounting for movements in liabilities.

What moved the numbers: trade, investment income and valuation swings

Trade momentum: Swiss exports continue to benefit from strong demand in niche manufacturing and luxury goods, which keeps goods surpluses intact. Services income, led by finance and professional services, added a reliable offset to any weakness in goods in some months.

Investment income explained: Because Swiss residents own large amounts of foreign assets, small changes in global yields and equity prices translate into substantial swings in reported investment income. When foreign markets rise, Swiss investors see big valuation gains, and those gains show up in the IIP even without new purchases.

Banking and funding flows: Cross‑border bank deposits and lending can turn quickly. Large Swiss banks often use international wholesale funding; that means sudden withdrawals or placements by nonresidents can move the ‘other investment’ line sharply. In this update, that channel was a clear cause of short‑term volatility.

Explainer — valuation effects: Valuation effects are the change in the value of existing assets and liabilities because markets moved, not because anyone bought or sold. For a country with sizeable foreign assets like Switzerland, these effects often dominate quarterly swings in the IIP.

Why investors care: FX, SNB policy and asset‑class implications

Swiss franc (FX): A sustained current account surplus plus positive valuation news is generally franc‑supportive. The SNB still watches capital flows closely, but the improved external position reduces one pressure point that might otherwise force intervention. Traders will watch whether the franc strengthens further; a stronger franc can squeeze Swiss exporters’ margins and weigh on profit forecasts.

SNB balance sheet and policy: The SNB’s foreign asset exposure and any intervention needs remain top of mind. If portfolio inflows and valuation gains continue, the bank’s FX position could grow, limiting its need to buy more foreign exchange to defend policy rates. That could subtly ease balance‑sheet growth, but the SNB also monitors inflation and domestic banking liquidity — so the policy reaction is not automatic.

Bonds and credit: Better external cushions reduce one sovereign risk factor and are generally positive for Swiss sovereign and high‑quality corporate debt. But rising global yields or a stronger franc would change that view quickly. Bank stocks can be sensitive: strong cross‑border deposit inflows and stable funding are positive, while renewed funding stress is not.

Equities and exporters: Exporters face competing forces. A firmer franc can dent overseas earnings when converted to Swiss francs, but healthier demand and resilient trade flows can offset that. For investors, the story is mixed: exporters with pricing power and local‑currency costs look better positioned than those that compete on price.

What traders should watch next: short‑term moves in global equity markets (valuation effects), flows into Swiss portfolio assets, and FX intervention hints from the SNB’s communications.

Context and watchlist: recent trends, upcoming releases and risk scenarios

Recent trend: The pattern of a goods‑led surplus combined with volatile financial flows has repeated in recent quarters. What changed this period was the magnitude of valuation effects, which amplified the headline IIP improvement.

Near‑term watchlist: Look for the SNB’s next commentary, monthly FX flow updates, and corporate earnings from major exporters — all can confirm whether the current pattern will persist. Global growth and world interest‑rate moves are the main external risks: a sharp global sell‑off would reverse valuation gains quickly.

Risk scenarios that could flip the market read: a sudden stop in foreign bank funding, a fast rise in global yields, or political shocks that dent trade. Any of those would push the franc and Swiss asset prices into a different gear and force the SNB to react more actively.

Bottom line: The latest SNB update shows Switzerland’s external balance remains a strength, helped by trade and mark‑to‑market gains. But the picture is fragile — it depends on global markets and bank funding patterns — so investors should track flows and valuation signals closely.

Sources

• snb.ch