Japanese and Swiss central bank shares soar in exuberant markets

(Reuters) – The listed shares of the Japanese and Swiss central banks rose sharply this week, without any apparent reason, possibly reflecting high levels of investor exuberance in markets awash with cash.

Shares in the Bank of Japan (BOJ) hit their upper trading limit for a third session on Wednesday, taking gains over 4 sessions to 71%. Swiss National Bank (SNB) shares rose around 10% in two days.

While both central banks have made big gains on their stock and bond holdings this year, the unusual strength of the share rallies suggested retail investors were piling in.

The BOJ and the SNB set monetary policy in economies with the world’s most popular funding currencies. Their peculiar ownership structures and low free float can exacerbate moves in their share prices.

Shareholders’ rights in both banks are also severely limited, which should theoretically narrow their investment appeal.

“BOJ shares might have surged on its upbeat earnings but the bank’s business objective is not to post profits, its purpose is to stabilise BOJ notes,” Hiroyuki Kubota, a financial analyst, tweeted.

“…we have to be cautious that BOJ shares are attracting speculative money,” Kubota added.

BOJ shares climbed to 47,000 yen ($440), their strongest since May 2018. The government owns more than half of the stock.

Veteran investors were reminded of the late 1980s when Japan was experiencing an asset-price bubble and BOJ shares became the target of speculative trading, rising 40-fold in four years.

SNB shares built on Monday’s strong gains after the bank posted a net 2020 profit of 20.9 billion Swiss francs ($22.8 bln).

Traders in Zurich said retail investors were most likely driving the move but volumes remained thin.

The SNB declined to comment on its share price move.

UNORTHODOX

The last sharp rise in SNB shares was in April 2018, when they climbed from below 2,000 Swiss francs to a record 9,760 francs in less than a year. That surge came after blogs in Germany compared the SNB’s shares to ultra-safe perpetual bonds.

Voting rights in SNB are subject to restrictions, with most of its shares held by the country’s cantons and regional banks. The central bank has been listed since its foundation in 1907, and 40% of its shares are held by the public.

SNB-watchers said the legal limit on dividends, at 6% of the share capital, also conflicted with the stock gains.

“A change in the SNB’s dividend policy is not in the cards, fundamentals stay the same,” said UBS economist Alessandro Bee.

The pullback in the Japanese yen and Swiss franc against the U.S. dollar this year, however, bodes well for the central banks as the value of hundreds of billions of dollars’ worth of overseas assets on their balance sheets rises.

Both central banks are known for their large portfolio holdings. The SNB’s 914 billion francs of foreign investments are bigger than the Swiss economy.

The Swiss central bank is a significant investor in U.S. tech stocks such as Apple In and Tesla Inc, while the BOJ has huge holdings in the local share market, which recently scaled a 30-year high.

($1 = 106.8100 yen)

($1 = 0.9163 Swiss franc)

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