By Matthew Brown Dec. 3 (Bloomberg) -- The Swiss franc may rise against the euro as the financial crisis spreads throughout the global economy, reducing foreign investment in favor of domestic assets, according to BNP Paribas SA. The franc will strengthen about 14 percent to 1.34 per euro by the end of the first quarter, and to 1.43 at the end of 2009, according to Hans-Guenter Redeker, chief currency strategist at BNP, the most accurate forecaster in a 2007 Bloomberg survey. It was at 1.5287 against the euro as of 11:21 a.m. today in Zurich. The franc climbed 5.2 percent against the euro since Lehman Brothers Holdings Inc. collapsed in mid-September as the banking crisis spread, rocking consumer and business confidence, prompting job losses and infecting industries such as automaking. Gains by the currency may accelerate amid signs the global recession is deepening, Redeker said. “With the financial contagion spilling over into the real side of the economy, the Swiss franc rally may become more pronounced,” Redeker said in a report. “As long as contagion has been limited to the financial sector, the Swiss franc has seen less repatriation pressure when compared to previous cycles.” Flows to the franc were slower than for the Japanese yen because Swiss investors favored foreign direct investment outside of the U.S., switching out of financial assets amid the subprime mortgage meltdown, Redeker said in a note to clients. The yen advanced 24 percent versus the franc since mid-September, the top- performing currency amid 16 peers monitored by Bloomberg. Foreign Investment “The Swiss franc has been underperforming the Japanese yen, because you can’t sell your foreign direct investment, it’s far less liquid,” Redeker said in a telephone interview from London. “The supportive impact of the economic downturn will be later than in previous cycles.” Switzerland almost doubled foreign direct investment to 56.7 billion francs ($46.9 billion) in 2007 from 20.1 billion francs in 2003, according to Swiss National Bank data. “There will be little incentive of Swiss accounts to continue investing in foreign direct investment, which over the past year has carried the bulk of the recycling of the massive 13 percent of GDP current-account surplus,” Redeker said in the note, dated Dec. 1. The franc will strengthen to 1.49 per euro by the end of the first quarter, before weakening to 1.53 by the end of 2009, according to median forecasts in Bloomberg surveys. The Swiss currency also weakened against the dollar since Sept. 12, the last business day before Lehman’s failure, as investors favored more liquid U.S. Treasuries over franc- denominated assets. To contact the reporter on this story: Matthew Brown in London at mbrown42@bloomberg.net

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