(13.1) Is the Swedish Krona a Safe-Haven?

The major reason why Sweden is no safe-haven can be seen in the Swedish balance of payments.  
2013 2013 2012 2012 2011
Q3 Q2 Q3
Current account
53.6 57.2 54.1 215.5 209.9
Trade in goods
14.0 25.0 17.2 77.7 74.9
Trade in services
26.9 29.0 26.0 112.3 107.9
Compensation of employees
‑0.9 ‑0.7 ‑0.6 ‑2.4 ‑2.6
Investment income
28.9 13.2 26.7 91.1 80.5
Current transfers
‑15.3 ‑9.3 ‑15.3 ‑63.2 ‑50.7
Capital account
‑2.0 ‑0.9 ‑0.9 ‑4.4 ‑3.7
Financial account
‑14.5 ‑101.6 76.7 ‑76.7 ‑301.1
Direct investments
‑4.7 ‑9.8 13.6 ‑85.2 ‑110.0
Portfolio investments
90.3 ‑8.0 101.2 97.8 172.9
Financial derivatives
6.5 19.2 17.4 36.2 ‑19.6
Other investments (lending)
‑110.0 ‑92.9 ‑55.5 ‑122.0 ‑339.8
Reserve assets
3.3 ‑10.1 0.0 ‑3.5 ‑4.6
Sweden has a pretty negative balance in lending (under other investments). These are two phenomena:
  1. Capital leaves the country due to repayments of loans
  2. Capital leaves the country money that escape the high taxes and is invested in fiduciary investments, for example in Swiss Franc.
Therefore it is in line with Emerging Markets, Australia or New Zealand that have a negative international investment position and need to pay interest for that. Thanks to the positive current account the international investment position continues to improve. -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Is the Swedish Krona a Safe-Haven? An exchange of arguments with Steen Jakobsen, Chief Economist Saxo Bank

Arguments in favor of and against the Swedish Krona, as safe-haven during the euros crisis. Extracts from tradingfloor.com from June 28th, 2012:
"EU debt crisis safe haven: We have long been positive on SEK - since Q4 of last year, and with the pending crisis in EZ there is ALL the reason in the world to be long SEK: 1. C/A Surplus 2. Budget Balance 3. Cutting taxes 4. Best Finance Minister in Europe 5. Free floating currency "inside" Europe 6. Small - open economy - meaning flexible labor and SME market SEK - however is getting to a very big support line, so it's either or from here. See chart below- Source: Bloomberg LLP Personally, Sweden is the new Switzerland to me- the currency has plenty of medium- to long-term potential and I see 8.6500 as the first target on the down-side....but we need to break the support to confirm….."
 

Our answer to Steen's post:

I agree as for the fundamentals you mentioned. Also positive for SEK are long-term factors, e.g. Education and Human-capital Another argument in favor of SEK: Recent talks of central banks (including the SNB) who diversify into non SDR currencies. However Sweden has quite a few disadvantages: 1. Sweden has a negative Net International Investment Position, but Norway or  Switzerland a strongly positive one. 2. No tax safe-haven yet: high Swedish tax reduces GDP, some rich people (IKEA) leave Sweden to live e.g. in Switzerland 3. Strong export dependency on Europe and on technology 4. No safe-haven banking sector exists, like in Switzerland 5. No commodity safe-haven like Norway or Canada 6. Missing liquidity : see Comment Riksbank Nyberg 7. SEK needs higher rates than EUR and rate hikes to appreciate, CHF does not. 8. Very important: EUR/SEK usually rises with falling stocks, so EUR/SEK marked a high over 9 on June 1st, when stock markets were falling. (might be macro algos)-->  SEK is missing a safe-haven tradition  9. Contracting swedish house prices (as opposed to Norway or Switzerland)
see "Germans panic-buy over-priced Swiss houses"
German investors buy houses in Switzerland and not in Sweden to avoid the euro crisis. Again a tradition argument which makes CHF rise (and one day the floor break) and not SEK.  

Update August 20, 2012

  From NASDAQ
FXstreet.com (Barcelona) - Many investors have wondered when the persistent currency appreciation will become a problem for Sweden. This is clearly a very valid question for a country, which is particularly reliant on the export sector. After all, exports constitute 50% of Sweden's GDP, 75% of which stay inside Europe. According to Research Analyst Chris Walker at UBS, "A strong SEK will undoubtedly act as a burden to some exporters, however rapid 'servicification' of the manufacturing export sector, lower corporate hedging ratios and a relatively tolerant central bank lead us to believe that current SEK strength will probably be sustained." After all, relative to other export-sensitive countries, Sweden has a competitive, productive and diverse export base, which leaves it better positioned to tolerate currency strength. "In any case, exporters may have little choice in the matter - non-trade related balance of payment flows, correlation breakdowns, and a wider context of limited (low risk) yield also point towards further structural inflows into the country. Sweden's international investment position remains negative but is moving in the right direction towards that of a traditional safe-haven country such as Japan or Switzerland. In light of these structural changes to the currency we see scope in tactically selling EUR/SEK volatility (implied volatility is now at yearly highs) while expecting EUR/SEK spot to push lower or at least consolidate around current levels." he adds.
 

Correlation between German data and Skandinavian currencies

CHF appreciates with good German data NOK, SEK and CHF appreciate against EUR, when German data is clearly better than European data, as shown above. If inflation in Europe and globally increases then both NOK and SEK appreciate, because both central banks are relatively hawkish. If however, disinflation reigns, then they may depreciate. In 2014, this happened in particular to NOK, despite continuing high Norwegian inflation.  

Update 2012-2014

Finally the test if the Swedish Krona is a safe-haven has come! The Risk-on appetite supported the euro against the Krone after Draghi's "whatever it takes". Moreover, the deep exposure of the Swedish economy on exports to European spending takes its toll. With the disinflationary environment, EUR/SEK appreciated.
 EUR SEK 2012 - 2014
George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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1 comment

  1. Mikael

    Norway krones with its massive oil reserves, forrest, fish and no debt is a real safe haven.
    And the best is that Norway is not within EU.

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