Is the Swedish Krona (SEK) the New Swiss Franc (CHF)?

on Oct 2, 2012

With global economic uncertainty and various stimulus measures affecting the value of major currencies such as the euro and the dollar, investors are constantly looking for new safe havens. It seems that one of the new haven currency alternatives might be Sweden’s krona (SEK), with Bloomberg reporting on 1 October 2012 that the Swedish currency was on the way to becoming the new Swiss franc (CHF) for investors seeking higher interest rates in a growing economy with a trade surplus and falling debt loan.

Since June, the krona has been the best performer in a basket of developed-market counterparts, with a three percent gain, about twice the advance of the runner-up, the Norwegian krone. Analysts have also hurried to raise their estimates for the krona; Bloomberg quotes John Taylor, founder and CEO of the New York-based hedge fund FX Concepts LLC, who noted in an interview that Sweden’s currency had the potential to reach 6.35 against the US dollar by the end of November, or a 3.5 percent advance. “The krona can go a lot further,” pointed out Mr Taylor. “Sweden has the wind behind it because Bernanke is making the dollar go down and Europe keeps having these traumas.”

In addition, strategists raised their forecast by the end of 2012 to 6.62 per dollar on September 28, from 7.17 in July, according to median estimates of analysts compiled by Bloomberg, whereas the estimate for mid-2013 went up from 7.12 to 6.81.
!m[](/uploads/story/501/thumbs/pic1_inline.png)Sweden’s currency has “all the pillars” to be a safe haven points out Peter Frank, a foreign-exchange strategist at Banco Bilbao Vizcaya Argentaria (NYSE:BBVA, MCE:BBVA), as quoted by Bloomberg. Among the pillars in question are the country’s public debt, which has fallen every year since 2009 and is projected to decline from 38.4 percent of gross domestic product in 2011, to 31.2 percent in 2015. The Scandinavian country also forecasts a budget surplus in 2014, whereas its economy has expanded more than twice as fast as the Eurozone in the past two years.

Yet, not all analysts see the krona as the new Swiss franc. The Financial Times recently quoted Jacob Lage Hansen, investment strategist at SEB (STO:SEB-A , STO:SEB-C) in Copenhagen, who noted that although both the Swedish krona and the Danish krone were attractive investment alternatives, the relative lack of liquidity in the Nordic currencies undermined their credentials as true havens.

In the beginning of August, Sweden’s finance minister Anders Borg commented that the strengthening of the krona was part of “normal market movements”, given Sweden’s stable economy and budget surplus, adding that it was too early to say whether the krona had become a haven. “It remains to be seen how long this [the strengthening of the krona] will last,” he pointed out, as quoted by the FT. This is a valid concern considering that Sweden’s economic growth for the second quarter was revised to an annual 1.3 percent from an earlier 2.3 estimate. In addition, while not part of the Eurozone, Sweden is not immune to collective European ailments, with Europe accounting for some 70 percent of the country’s exports.

And while the Swedish krona might or might not be the new Swiss franc in terms of currency haven
status, Sveriges Riksbank is definitely not the Swiss National Bank (SNB), with Bloomberg reporting that unlike the SNB, Sweden’s central bank has indicated that it sees no need to curb the krona’s appreciation. “The krona is at a level, which is stronger than many times before, but it’s not an extraordinary or different krona strength,” notes Stefan Ingves, Riksbank governor. The central bank’s policy makers estimate that they might have to raise their interest rate to about three percent in three years, with the global economy recovering.
Bloomberg also quoted Scania’s (STO:SCV-B) CEO Martin Lundstedt as saying that his company did not have any plans to change its strategy due to the krona’s strength. “If this continues for a long period of time we will find solutions to keep our competitiveness,” said Mr Lundstedt.

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