Because of a change in Swiss policy, large stock and bond investors must leave the country.

London (Reuters) – Securities that are already under a lot of pressure, like Silicon Valley stocks and U.S. and European government bonds, could lose a major buyer if Switzerland stops its long-standing policy of recycling euros and dollars into foreign markets.

The Swiss National Bank recently raised interest rates by half a point without warning and, for the first time in years, didn’t mention that the franc is a very valuable currency in its statement.

The change is a big deal because it means the SNB will no longer try to weaken the currency by buying foreign exchange. This was the policy that helped it build up a reserve pile of almost $1 trillion.

Unlike most central banks, it put the money it made from intervention back into world markets instead of keeping it at home. This made it a big investor in stocks and bonds. In the past few years, it was one of the biggest investors in companies like Apple, Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT).

Any change in how much it buys or a move toward selling, which is possible since the bank said it is also ready to stop the franc from getting weaker, could make already unstable markets even more unstable.

“Since the SNB is no longer trying to keep the franc weak, they will sell off their large U.S. stock holdings, especially in FAANGS,” said Kaspar Hense, senior portfolio manager at Bluebay Asset Management. “This should increase selling pressure on these mega-cap names,” he added, referring to the tech companies Facebook (NASDAQ:META), Apple, Amazon, Netflix (NFLX), and Google (NASDAQ:GOOGL).

The SNB has already reduced its purchases of foreign currency.This was shown by a drop in “total sight deposits,” which are seen as a proxy for intervention, at Swiss banks. In the week ending June 17, these deposits fell by 1.3 billion Swiss francs.A month earlier, they went up by 756 million francs, and in early April, they went up by almost 6 billion francs.

The SNB said that whether it let existing bonds expire or actively sold assets, it would try to have as little effect on the market as possible. The focus would still be on the overall liquidity of the portfolio.

Since inflation is higher than the SNB’s goal, the franc has been allowed to rise against the euro to levels not seen in seven years. In March, it briefly went above one franc per euro. It hasn’t done as well against the dollar, which has gone up because people think the U.S. Federal Reserve will tighten its policies quickly.

FAANGs

The SNB’s recent change in policy is not as shocking as its decision in 2015 to stop tying the franc’s exchange rate to the euro. Tighter policies and a possible retreat from the markets, however, are occurring at the same time as a market selloff that is worsening and has caused global stocks to fall by 21% this year.

As inflation hits highs not seen in decades, bond yields have also gone up, which has caused steep rate hikes.

“By themselves, (possible asset sales) wouldn’t have had much of an effect, but they are happening at the same time as a sharp re-pricing and less market liquidity, so the effect is likely to be bigger,” said Antoine Bouvet, a senior rates strategist at ING.

Since the SNB doesn’t break down exactly which assets it owns in each currency, it’s hard to know how a pullback in investments will affect the country.

As of the end of March, SNB data does show that a quarter of its FX reserves were in stocks.

At the time, U.S. regulatory filings showed that the SNB’s portfolio of U.S. stocks was worth $177 billion. It included Apple shares (NASDAQ:AAPL) worth $12.4 billion, Microsoft shares worth $9.5 billion, and Amazon shares worth $6.4 billion. Exxon Mobil (NYSE:XOM) was worth $1.5 billion, and Coca Cola was worth $1.1 billion.

Reuters used SNB data to figure out that the SNB also has foreign government bonds worth 600 billion francs. This represents 64% of its foreign exchange reserves.

Assuming that bonds make up the same share of holdings in each currency as they do in its entire FX portfolio, Reuters calculations show that this could include about $248 billion of U.S. Treasuries and 221 billion euros of euro zone government debt, most of which is likely to be top-rated bonds like Germany’s.

Sphia Salim, a strategist at BofA, said, “Their activities have been quite large over the past few years, and central banks in general have been buying more euros, including the SNB.” She thought that short-term German bonds would be under pressure.

Not surprisingly, the change in policy last week caused bond yields in the euro zone and the U.S. to go up.

Lyn Graham-Taylor, a senior rates strategist at Rabobank, said that if the SNB wanted to get rid of its bond holdings, it would first stop reinvesting the money from bonds that came due. He thinks that the SNB could get rid of almost 5 billion euros of German government debt by the end of the year.

In 2023, “you’ll get those worries about the SNB possibly selling bonds, combined with higher issuance next year and the possibility of ECB QT,” BofA’s Salim said, referring to the idea that the European Central Bank may eventually start reducing its own balance sheet, a process called “Quantitative Tightening.”