Alfred Berg sees potential issues around safe havens NOK and SEK
Fixed income and currency allocation experts at Alfred Berg are seeing conflicting factors at work that could affect the new-found safe haven status
of the Norwegian and Swedish currencies.
When the Swiss National Bank (SNB) recently decided to peg the franc at a lower rate against the euro to protect its own economy from the effects of sharp ongoing appreciation, many investors turned to the Norwegian krone (NOK) and Swedish krona (SEK) as alternative safe havens.
Evidence of the effects came immediately, for example, as volumes of currency traded in Oslo tripled on the day of the SNB announcement, amid unprecedented daily price volatility.
The question, then, is whether this is a short-term phenomenon or the start of a longer-term trend that both domestic and international investors must consider.
Helge Arnesen, CEO and CIO at Alfred Berg Kapitalforvaltning AS (Norway), and Stefan Gothenby (pictured), head of fixed income at Alfred Berg Kapitalförvaltning AB (Sweden), believe that the strength in the countries’ respective currencies is a trend that is set to stay.
But they add that there are some seemingly contradictory factors at work, especially in Norway, that will make difficult predictions of the duration and volatility of any currency appreciation.
“Sweden is a small, open country with a large export sector, which means the currency is cyclical,” says Gotheby. “Typically in an economic downturn, the currency can weaken.
We have had a small weakening, but nothing like the level one would expect. One reason is because people see Sweden as a safe haven, and have bought into the currency area.
“We’ve seen tendencies to an inflow into Sweden and strong inflows into our fixed income products. It remains difficult to exactly identify where that comes from, but there is definitely a link to how people view the Nordic region as a currency area.”
Sweden’s National Institute of Economic Research (Konjunkturinstitutet) reported on 28 September that its economic tendency indicator fell another three points over the month, taking the fall to 15 points over four months.
It said: “The indicator is currently below the average, suggesting weaker than normal growth in the Swedish economy at present.” According to the expectations outlined by Gothenby, that ought to lead to weaker currency.
Instead, exchange rate data suggests the SEK remained pretty much unchanged against the euro between the beginning and end of September, at a level of about SEK9.2/€1.
The Swedish currency depreciated against the dollar, from about SEK6.4 to about SEK6.8.
Against the Swiss franc, it appreciated from a peak of about SEK8.2 – just before the SNB’s announcement – to about SEK7.5 by the end of the month.