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Over the weekend, an important international sales event happened. As expected, Switzerland and China signed a free trade agreement. The move marks a milestone for the most populous country in the world. China had previously signed a deal with Iceland in April as its first free trade European partner. The signing of Switzerland now marks the first continental European country to have a free trade agreement with China.

In 2012, bilateral trade volume between the two nations hit $26.3 billion. In the first five months of 2013, the two countries have seen trade of $22.9 billion worth of goods, nearly eclipsing last year's sales. With the free trade agreement will come lower tariffs and some tariff free import/export deals. The benefits from Switzerland represent several investing opportunities at the moment.

Watches

Many analysts believe the biggest beneficiary of the new free trade agreement will be watches. Swiss watches have long been known for their fame and luxury association. Two publicly traded pink sheet stocks in the United States give investors a way to profit on growing watch sales in China with the lower associated coming tariffs.

Swatch (OTCPK:SWGAY) is a $30 billion Swiss company that has a large presence in the watch industry. One of the most intriguing reasons to invest in Swatch is its diversification among price levels. The company offers brands in tiers of basic, middle, high-end, prestige and private label. These levels give many customers around the world an opportunity to obtain a Swatch watch.

In 2012, sales at Swatch increased 14%. Sales in Greater China increased 11% for the year. The Asia region represented 53% of total company sales. The free trade agreement and a lower tariff offers a tremendous opportunity to boost sales in the region even further.

Recently, Swatch acquired the jewelry and watch business of Harry Winston. The total purchase of $1 billion ($750 million plus $250 million debt) gives Swatch entry into the luxury jewelry industry, where it can better compete with prestigious high-end companies.

Another way to play the lower tariffs on luxury items in China is Richemont (OTCPK:CFRUY). Unlike Swatch, Richemont splits its watches and jewelry businesses separate for reporting purposes. Jewelry makes up [pdf] 51% of sales, while watches account for 27%. Similar to Swatch, Richemont did see sales increase 14% in the last fiscal year.

In 2012, Richemont saw the Asia Pacific region represent 37% of total sales, making it the second largest geographic unit for the company. Only Europe (38%) represents a greater sales importance to the company. With the new deal in place, I expect Asia Pacific to actually eclipse Europe and become the number one region for the $48 billion company.

Aside from the strong sales in the Asia Pacific region, there is another reason to invest in Richemont, which trades for less than $10 a share on the pink sheets. Richemont owns the modern Chinese chic brand Shanghai Tang. The brand is expanding throughout the country and could offer strong growth ahead with growing Chinese sales. The company will open its largest flagship store in China this year, after opening several in large shopping malls last year.

Switzerland ETFs

Throughout the thousands of exchange traded funds, investors have two main options for funds that have 90% or more Swiss exposure. With the new fair trade agreement, both are worth buying for the long term.

With $902 million in assets, the iShares MSCI Switzerland Capped Index (NYSEARCA:EWL) is the biggest way to play the Swiss economy. The ETF offers great exposure to many large companies in Switzerland. Among the top-10 holdings are large world giants Nestle (17%), Roche (14%), Novartis (13%), and ABB (4%).

The iShares ETF also charges only 0.5% in expenses, which is less than the next option from First Trust. The biggest downfall with the ETF is its large weight in healthcare, which represents 29% of the fund. The Chinese free trade agreement isn't likely to have a major impact on healthcare stocks and the pending new legislation in America could hurt some large pharmaceutical companies. However, the iShares option does have great exposure to industries that will see a boost including: consumer staples (20%), consumer discretionary (7%), industrials (11%), and materials (8%). Richemont, mentioned above represents 4% of the ETF, while Swatch is also 3% of the fund. The ETF represents a way to play the two luxury watch makers and the entire economy of Switzerland.

Founded in February of 2012, the First Trust Switzerland ETF (NYSEARCA:FSZ) is much smaller ($15 million in assets). The ETF charges 0.8% in expenses, making it a bit pricier. First Trust's fund does offer more companies and has a better weighting with no stock representing more than 5% of the fund. The biggest worry I see is the 33% weighting to financials, which makes the fund vulnerable to any change in financial regulations or weakness in European banks. Industrials (25%), materials (13%), consumer discretionary (12%), and consumer staples (6%) are all well represented in the fund.

Conclusion

According to the Business Inquirer, Switzerland, and the Philippines, are working out a free trade agreement. Swiss officials want to reach a deal to "promote growth, create value and enhance the competitiveness for both partners." This is another exciting event to watch that could boost sales of watches and the prices of Swiss-based ETFs even further. It's time to get some Swiss exposure in your portfolio. My favorite picks are these four stocks and I think investors should see great returns with any of them.

Source: Switzerland And China Sign Free Trade Agreement: 4 Ways To Trade