Wednesday saw another selloff in global equities, and Swiss equities, usually a staple of stability, sold off more than their peers. The issue lies in a potential legal scandal among the companies that comprise the Swiss index.
Allegations have been made that major European banks colluded to manipulate the foreign-exchange market. Regulators are looking into UBS and the Swiss National Bank. Both are heavily weighted in the iShares MSCI Switzerland Capped Index shown below.
If the scandal continues to affect those companies, then even if global equities hit a bottom and begin to trend higher, Swiss shares may stay suppressed.
On a technical level, the index broke higher out of a reverse head-and-shoulders pattern in September.
With Swiss equities crashing back into the pattern in October, expect selling until both global equities strengthen and issues regarding Swiss banks are resolved.
The next chart is of the EURCHF currency pair. The Swiss franc is bid higher during times of market fear and uncertainty, like now with the debt-ceiling debacle in the U.S.
Although the euro has rallied higher the past few weeks, the Swiss franc still holds near its 1.20 maximum strength limit. On Tuesday, Swiss National Bank Chairman Thomas Jordan reiterated his commitment to the 1.20 limit.
Equities and commodities as a whole look to be forming bearish patterns on long-term charts.
Although a correction higher in oversold global assets is expected, the stable Swiss franc could prove to be an attractive safe haven to store funds as markets resume selling.
The same cannot be said for Swiss equities. Although the Swiss economy is stable, the index is heavily weighted in banks, and a global selloff could roil the Swiss equity market.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.