While the Swiss franc’s position as a haven during the eurozone debt crisis has grabbed the headlines, another European currency now offers much the same protection – the Swedish krona, says Paul Robson, senior FX strategist at RBS.
“Safe haven currencies are largely judged on a country’s sovereign debt position, financial stability, current account position and market size/liquidity,” he says. “Such factors provide confidence over whether to hold a country’s assets in times of market stress.”
Mr Robson says that anecdotally, Swiss franc liquidity has recently deteriorated significantly. He adds that there is little to choose between the fiscal positions of Sweden and Switzerland, and that both countries have persistently run current account surpluses.
“It’s also important to consider the krona’s candidacy as a haven from specific eurozone periphery stress. According to the Riksbank, the exposure of Sweden’s banks to the five periphery economies is just 2 per cent of GDP, against 10 per cent for Switzerland. Furthermore, concerns about Sweden’s exposure to the Baltics have significantly subsided.
“Recent differences in export performance also suggest the krona offers far more value than the franc. While valuation isn’t always a key motive for holding a safe haven currency, the similarities between the franc and the krona may make it more important than normal in the months ahead.”
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