(Bloomberg) -- The Swiss franc is shaping up to be the perfect hedge for investors wanting to guard against U.S. election volatility.
Brexit shows the currency to be a win-win proposition, according to analysts at UBS Group AG, Switzerland’s biggest bank. If Donald Trump is victorious -- a prospect not relished by markets because of his protectionist views -- then the franc would likely appreciate. It’s traditionally favored as a port in a storm because of the nation’s current-account surplus.
But even if Hillary Clinton enters the White House, the argument goes, the franc probably wouldn’t crash. Stocks and other higher-yielding assets have been resilient in the wake of the U.K.’s June 23 vote to quit the European Union, yet the Swiss currency hasn’t reacted by tumbling.
The relationship between the franc and higher-risk assets “has been asymmetric since the outcome of the U.K. referendum,” London-based fixed-income strategist Nishay Patel and economist Felix Huefner said in a note. “The recovery in risk assets” hasn’t resulted in “a large depreciation of the Swiss franc.”
The franc has climbed recently as Republican Trump closes the gap on his Democratic rival, and this week reached the strongest level since its highs in the wake of the Brexit vote.
Still, its upside isn’t unlimited. The Swiss National Bank intervened to weaken the franc on June 24, and there’s evidence it’s defending a soft currency cap of 1.08 per euro, compared with its level of 1.0811 per euro as of 10:05 a.m. in London.