STOCKHOLM: Of all the European economies providing shelter for investors avoiding the euro zone, Sweden is considered one of the safest bets thanks to its free-floating currency, strong budget record and developed bond market.
With the euro zone stumbling towards a resolution of its debt crisis, investors have been searching for bolt-holes, more concerned about the return of their money than the return on it.
Switzerland, Norway, Germany, Britain and Denmark have benefited alongside Sweden, but all bar Sweden - where the economy outperformed much of the developed world in the first half of 2012 - face problems that could diminish their appeal.
"We judge the Swedish government bond market to be the safest market in the world regarding default risks and believe Sweden will keep its safe haven status for the foreseeable future," said Thede Ruest ING Investment Management.
Switzerland has introduced a cap for its currency, slowing inflows, and has a small bond market.
Denmark has a negative deposit rate to put off investors and Britain faces a downgrade having so far failed to rekindle growth.
Norway, Europe's best performer due to its oil wealth, also lacks liquidity in its small bond and currency market.
Euro zone powerhouse Germany, on the other hand, faces picking up the tab for restoring health to the bloc.
"Swedish bonds offer many of the characteristics of core euro zone bonds - a high credit rating and good liquidity, without any of the potential large-scale contingent liabilities," said Jack Kelly, Investment Director for Global Government Bonds at Standard Life Investments.
Standard Life has been switching out of German debt into Sweden over the last year, he said.
Attracted by Sweden's gold-plated AAA investment rating, strong government finances and a sound banking system, foreign holdings of Swedish debt hit a record in June and the crown hit a 12-year high against the euro in August.
Overseas investors have bought around 140 billion crowns ($21.3 billion) net in Swedish bonds this year, taking overseas ownership of Sweden's debt to around 58 percent of outstanding debt from 41 percent a year ago, according to Danske Bank.
Swedish covered bonds have also become an increasingly attractive investment for many investors given declining fears about the housing market.
SOUND FINANCES
One of the main building blocks of Sweden's attractiveness has been its sound public finances, with small surpluses or small deficits contrasting with bigger fiscal gaps elsewhere.
Sweden's banks are well-capitalised and have little exposure to Greece, Italy, Spain and Portugal.
The central bank controls monetary policy and, unlike its counterparts in Switzerland and Denmark, has done little to cap the strength of the crown.
This, and output growth among the highest in Europe in the first half of the year, helped boost the Swedish currency to a 12 year high of around 8.18 to the euro in August.
Growth may have stalled and the central bank has started to cut rates, but the economy is still set to expand around 1.5 percent this year, according to the central bank.
That would beat the euro zone, IMF forecasts show. "Even with a reducing (rate) differential, the SEK should stay reasonably well supported," added Paul Duncombe, Senior Investment Solutions Manager at fund manager Schroders.
He saw the crown in a range of 8.20-8.80 in the near future from around 8.63 currently, which would be above its historical average level of the last couple of years.
UPSIDE
While Sweden is currently a shelter for risk-averse investors, it could also appeal as a recovery play with its bias to exports such as trucks from Volvo and compressors by Atlas CopcoBSE 0.49 %.
Swedish stocks have a beta of 1.7 to the MSCI World Index, meaning returns that are on average 1.7 times the magnitude of the overall market's returns. Britain has a beta of around 1.1.
"More risk appetite, in general, benefits riskier assets like equities," said Heidi Elmer, chief investment officer at insurer Skandia.
"If it is the case that we can see signs that economies in the wider world pick up again, clearly it is positive for the Swedish economy and assets."
indiatimes.com
With the euro zone stumbling towards a resolution of its debt crisis, investors have been searching for bolt-holes, more concerned about the return of their money than the return on it.
Switzerland, Norway, Germany, Britain and Denmark have benefited alongside Sweden, but all bar Sweden - where the economy outperformed much of the developed world in the first half of 2012 - face problems that could diminish their appeal.
"We judge the Swedish government bond market to be the safest market in the world regarding default risks and believe Sweden will keep its safe haven status for the foreseeable future," said Thede Ruest ING Investment Management.
Switzerland has introduced a cap for its currency, slowing inflows, and has a small bond market.
Denmark has a negative deposit rate to put off investors and Britain faces a downgrade having so far failed to rekindle growth.
Norway, Europe's best performer due to its oil wealth, also lacks liquidity in its small bond and currency market.
Euro zone powerhouse Germany, on the other hand, faces picking up the tab for restoring health to the bloc.
"Swedish bonds offer many of the characteristics of core euro zone bonds - a high credit rating and good liquidity, without any of the potential large-scale contingent liabilities," said Jack Kelly, Investment Director for Global Government Bonds at Standard Life Investments.
Standard Life has been switching out of German debt into Sweden over the last year, he said.
Attracted by Sweden's gold-plated AAA investment rating, strong government finances and a sound banking system, foreign holdings of Swedish debt hit a record in June and the crown hit a 12-year high against the euro in August.
Overseas investors have bought around 140 billion crowns ($21.3 billion) net in Swedish bonds this year, taking overseas ownership of Sweden's debt to around 58 percent of outstanding debt from 41 percent a year ago, according to Danske Bank.
Swedish covered bonds have also become an increasingly attractive investment for many investors given declining fears about the housing market.
SOUND FINANCES
One of the main building blocks of Sweden's attractiveness has been its sound public finances, with small surpluses or small deficits contrasting with bigger fiscal gaps elsewhere.
Sweden's banks are well-capitalised and have little exposure to Greece, Italy, Spain and Portugal.
The central bank controls monetary policy and, unlike its counterparts in Switzerland and Denmark, has done little to cap the strength of the crown.
This, and output growth among the highest in Europe in the first half of the year, helped boost the Swedish currency to a 12 year high of around 8.18 to the euro in August.
Growth may have stalled and the central bank has started to cut rates, but the economy is still set to expand around 1.5 percent this year, according to the central bank.
That would beat the euro zone, IMF forecasts show. "Even with a reducing (rate) differential, the SEK should stay reasonably well supported," added Paul Duncombe, Senior Investment Solutions Manager at fund manager Schroders.
He saw the crown in a range of 8.20-8.80 in the near future from around 8.63 currently, which would be above its historical average level of the last couple of years.
UPSIDE
While Sweden is currently a shelter for risk-averse investors, it could also appeal as a recovery play with its bias to exports such as trucks from Volvo and compressors by Atlas CopcoBSE 0.49 %.
Swedish stocks have a beta of 1.7 to the MSCI World Index, meaning returns that are on average 1.7 times the magnitude of the overall market's returns. Britain has a beta of around 1.1.
"More risk appetite, in general, benefits riskier assets like equities," said Heidi Elmer, chief investment officer at insurer Skandia.
"If it is the case that we can see signs that economies in the wider world pick up again, clearly it is positive for the Swedish economy and assets."
indiatimes.com
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