Yesterday, Switzerland stopped pegging its currency, the franc, to the Euro. This caused the franc to zoom around 20% higher against the Euro and about 16% higher against the Dollar as well as other currencies. Some watch company shares plummeted in this unexpected news; Nicolas Hayek called this a "tsunami" for the Swiss economy .
To read one of many articles about this please click here.
This will mean that Swiss watches are more "costly" to produce when valued in other currencies. This further means prices will gave to rise, in some instances dramatically. To the extend prices don't rise correspondingly, margins are reduced and therefore profits are less. Also, rising prices don't help sales, since demand is normally less as prices increase.
These dire effects were reflected in market prices for watch industry stocks. Just yesterday, Swatch Group shares declined 15%. At the same time, Richemont just announced that its third quarter was the worst in years, primarily due to Asia sales (see one article here.) Richemont shares have so far declined substantially today.
I hope the Swiss national bank reverses or moderates its decision, but it suddenly looks like it's going to be a tough year for the watch industry.
My personal opinions:
1) IWC, due to its product line-up and price points, is better suited than most to weather a storm
and
2) Buy now. Don't wait --prices have to go up.
Your thoughts?